Flat Tax Reforms: A Dynamic General Equilibrium Analysis for Sweden

Abstract: This thesis uses a dynamic general equilibrium model to evaluate the steady state effects of a flat tax reform in Sweden. The reforms considered range from a purely proportional tax scheme to a flat tax with 30 percent deduction on labor income. We evaluate the welfare implications and the changes in output, effective labor input and capital stock. We find that a flat tax reform can lead to an increase in long run output, effective labor input and capital stock. Moreover there are potential welfare gains for the two most efficient groups, as well as for the least efficient. However, none of the reforms are Pareto improving.