1 Introduction
In the past century, the flat tax seemed consigned to the category of potentially desir-
able but politically unattainable reform. Widely believed by neoliberal economists to
offer huge revenue gains, both by reducing bureaucracy and increasing payments, it had
been repeatedly deemed too tough a sell to voting publics who wanted to be taxed only
according to their level of income.
But that all changed in 1994, when Estonia’s youthful, liberal government pushed
through a flat tax of 26 percent. Taken alone, this might have been just an anomaly, as
the government had instated a basket of reforms that was the stuff of neoliberal dreams,
including zero-tariff trade. Furthermore, small, open economies such as Hong Kong and
the UK’s Channel Islands had also embraced the flat tax (in 1947 and 1994, respectively)
but did not have any followers.1 But within a year, Estonia’s Baltic neighbors followed
suit. Ten years on, close to a dozen countries in Eastern Europe have joined the flat tax
revolution, and several more seem poised to do so.2
How did governments as diverse as underachieving Romania, dynamic Slovakia, and
rapidly growing yet far from liberal Russia push through this reform, long considered to
be politically too sensitive to tackle? Researchers interested in extraordinary politics in
the developing world are confronted with a dilemma. Most of the empirical work on the
determinants of particular economic reforms has been done on OECD countries. The
assumptions underlying those models may not be relevant for the developing countries,
because of structural differences in those countries economies as well as in their politics.
Furthermore, the literature on taxation is more concerned with predicting the levels of tax
1Hong Kong’s is not a pure flat tax; it has different marginal tax rates for a few different levels of
income.
2The countries are, in order of adoption, Estonia, Lithuania, Latvia, Russia, Serbia and Montenegro,
Ukraine, Slovakia, Georgia, Romania, and Albania.