Flat tax and Sweden: According to Hall and Rabushka

Abstract: In April 2005, the Economist featured a series of articles about the taxation concept that, according to its proponents, would serve as the medicine potentially boosting Western Europe’s somewhat struggling economies. The “Flat-tax” became heavily discussed throughout media as means of improving aggregate country productivity. The small and open economy Sweden was no exception. While many less developed countries in Europe are experiencing vast successes as a result of its introductions of flat taxation, not a single country in modern Europe has followed the example. This thesis presents the case of the Hall and Rabushka Flat Tax for Sweden. Using true income data from 2003 and a set of constraints, such as tax revenue neutrality and a limited number of tax rate scenarios, we show that Sweden is able to satisfy a Flat Tax ranging from 28 to 37 percent, but that it entails a trade-off between increasing this level at the cost/benefit of income distribution. We also explore potential difficulties for businesses with the introduction of a Flat Tax.