Does tax simplification yield more equity and efficiency? An empirical analysis for Germany

This paper investigates the impact of tax simplification on various indicators of the efficiency of the tax system and on the distribution of income. The analysis is based on a simulation model (FiFoSiM) using German income tax and household survey microdata. We model tax simplification as the abolition of a set of deductions from the tax base included in the German income tax system. We find that this form of tax base simplification leads to a reduction in the use of professional tax advice, a more equitable income distribution and an increase in tax revenue. If these measures are combined with a reduction of income tax rates to preserve revenue neutrality, the effects depend on the type of rate schedule adjustment. The combination with a flat rate tax implies redistribution in favour of very high incomes, and an overall increase in income inequality. Efficiency effects in terms of changes in marginal tax rates and labor supply effects are mixed. The combination with a rate schedule adjustment which preserves the directly progressive rate schedule yields a tax reform which reduces the inequality of after tax incomes. We conclude that tax simplification may improve the efficiency of the tax system without increasing inequality of after tax income. --Income distribution,polarisation,tax simplification,flat tax

Is a Flat Tax politically feasible in a grown-up Welfare State?

The introduction of a flat tax is supposed to have several advantages. Administration and compliance costs are reduced, as well as incentives for tax evasion. Furthermore, positive employment and growth effects are expected. Despite these advantages, a flat rate tax is not very popular in most Western European countries. The most important objection against a flat tax states that a flat rate tax would be inequitable and unfair. The present paper uses a simulation model based on a unique database of German micro data to provide empirical evidence for the analysis of the equity and efficiency effects as indicators for the political feasibility of flat rate tax reforms. Our analysis shows that the selection of the schedule and tax base parameters are crucial for the effects of flat tax reforms in terms of equity and efficiency. A flat rate tax with a higher basic allowance and a higher single rate has less harmful distributional effects than a flat rate tax with low basic allowance and tax rate. Nevertheless, the scenario with the lowest parameter values for basic allowance and tax rate is the only alternative that leads to positive labour supply and significantly positive welfare effects. Both labour supply and static welfare e¤ects, however, are quite small. Although we have derived our results for the case of Germany, we do think that similar patterns would be observed in other countries of Western Europe. If this proves to be correct, it will be hard for flat tax reforms to invade the grown-up welfare states of "Old Europe". --Flat Tax reform,equity,efficiency,distribution,welfare

Dokumentation FiFoSiM: Integriertes Steuer-Transfer-Mikrosimulations- und CGE-Modell

Diese Dokumentation beschreibt das integrierte Steuer-Transfer-Mikrosimulations- und CGE-Modell FiFoSiM des Finanzwissenschaftlichen Forschungsinstituts an der Universität zu Köln (FiFo). FiFoSiM unterscheidet sich von den bisherigen Steuer- und Transfersimulationsmodellen auf zweierlei Weise : Zum einen durch die doppelte Datenbasis und zum anderen durch die Kombination mit einem rechenbaren allgemeinen Gleichgewichtsmodell. FiFoSiM basiert auf zwei verschiedenen Datenquellen: FAST98 und SOEP. Die Nachbildung des Steuersystems wird mit der Technik der Mikrosimulation vollzogen. FiFoSiM enthält weiterhin ein ökonometrisch geschätztes Arbeitsangebotsmodell, sowie ein CGE-Modul zur Berechnung der Beschäftigungs- und Wachstumswirkungen von Steuerreformen

Does tax simplification yield more equity and efficiency? An empirical analysis for Germany

This paper investigates the impact of tax simplification on various indicators of the efficiency of the tax system and on the distribution of income. The analysis is based on a simulation model (FiFoSiM) using German income tax and household survey microdata. We model tax simplification as the abolition of a set of deductions from the tax base included in the German income tax system. We find that this form of tax base simplification leads to a reduction in the use of professional tax advice, a more equitable income distribution and an increase in tax revenue. If these measures are combined with a reduction of income tax rates to preserve revenue neutrality, the effects depend on the type of rate schedule adjustment. The combination with a flat rate tax implies redistribution in favour of very high incomes, and an overall increase in income inequality. Efficiency effects in terms of changes in marginal tax rates and labor supply effects are mixed. The combination with a rate schedule adjustment which preserves the directly progressive rate schedule yields a tax reform which reduces the inequality of after tax incomes. We conclude that tax simplification may improve the efficiency of the tax system without increasing inequality of after tax income

Die Flat Tax: Wer gewinnt? Wer verliert? Eine empirische Analyse für Deutschland

In der Debatte über eine Reform des deutschen Einkommensteuersystems wird immer wieder die Einführung einer Flat Rate Tax gefordert. Üblicherweise bestehen solche Vorschläge aus den Elementen Verbreiterung der Bemessungsgrundlage, Erhöhung des Grundfreibetrags und Einführung eines (relativ niedrigen) einheitlichen Grenzsteuersatzes. Flat Rate Tax-Systemen werden Vorteile in Form positiver Effizienzwirkungen zugesprochen. Der wichtigste Einwand besteht in den zu erwartenden Verteilungswirkungen. In diesem Beitrag wird anhand von Mikrosimulationsstudien untersucht, wie sich verschiedene Flat Rate Tax-Reformvarianten in Deutschland auf die Einkommensverteilung auswirken würde, und wer die Gewinner und Verlierer dieser Reformvarianten wären. Es zeigt sich, dass die Einkommensungleichheit insgesamt zunimmt. Vor allem die Mittelschicht und insbesondere abhängig Beschäftigte und Rentner und damit eine Mehrheit der Bevölkerung würden durch den Übergang zur Flat Rate Tax verlieren, während das höchste Einkommensdezil und insbesondere die Selbständigen besser gestellt wären

Is a Flat Tax politically feasible in a grown-up Welfare State?

The introduction of a flat tax is supposed to have several advantages. Administration and compliance costs are reduced, as well as incentives for tax evasion. Furthermore, positive employment and growth effects are expected. Despite these advantages, a flat rate tax is not very popular in most Western European countries. The most important objection against a flat tax states that a flat rate tax would be inequitable and unfair. The present paper uses a simulation model based on a unique database of German micro data to provide empirical evidence for the analysis of the equity and efficiency effects as indicators for the political feasibility of flat rate tax reforms. Our analysis shows that the selection of the schedule and tax base parameters are crucial for the effects of flat tax reforms in terms of equity and efficiency. A flat rate tax with a higher basic allowance and a higher single rate has less harmful distributional effects than a flat rate tax with low basic allowance and tax rate. Nevertheless, the scenario with the lowest parameter values for basic allowance and tax rate is the only alternative that leads to positive labour supply and significantly positive welfare effects. Both labour supply and static welfare effects, however, are quite small. Although we have derived our results for the case of Germany, we do think that similar patterns would be observed in other countries of Western Europe. If this proves to be correct, it will be hard for flat tax reforms to invade the grown-up welfare states of "Old Europe"

Is a flat tax feasible in a grown-up welfare state?

The success of the flat rate tax in Eastern Europe suggests that this concept could also be a model for the welfare states of Western Europe. The present paper uses a simulation model to analyse the effects of revenue neutral flat rate tax reforms on equity and efficiency for the case of Germany. We find that a flat rate tax with a low tax rate and a low basic allowance yields positive static welfare effects amounting to approximately 1.8 per cent of income tax revenue but increases income inequality. The increase in income inequality can be avoided by combining a higher tax rate with a higher basic allowance. But in this case the efficiency gains vanish. We conclude that, due to their limited efficiency effects and their problematic distributional impact, flat tax reforms are unlikely to spill over to the welfare states of Western Europe

Constructing Exact Confidence Regions on Parameter Manifolds of Non-Linear Models

Using the mathematical framework of information geometry, we introduce a novel method which allows one to efficiently determine the exact shape of simultaneous confidence regions for non-linearly parametrised models. Furthermore, we show how pointwise confidence bands around the model predictions can be constructed from detailed knowledge of the exact confidence region with little additional computational effort. We exemplify our methods using inference problems in cosmology and epidemic modelling. An open source implementation of the developed schemes is publicly available via the InformationGeometry.jl package for the Julia programming language.Comment: 24 page

Estimating Post-Synaptic Effects for Online Training of Feed-Forward SNNs

Facilitating online learning in spiking neural networks (SNNs) is a key step in developing event-based models that can adapt to changing environments and learn from continuous data streams in real-time. Although forward-mode differentiation enables online learning, its computational requirements restrict scalability. This is typically addressed through approximations that limit learning in deep models. In this study, we propose Online Training with Postsynaptic Estimates (OTPE) for training feed-forward SNNs, which approximates Real-Time Recurrent Learning (RTRL) by incorporating temporal dynamics not captured by current approximations, such as Online Training Through Time (OTTT) and Online Spatio-Temporal Learning (OSTL). We show improved scaling for multi-layer networks using a novel approximation of temporal effects on the subsequent layer's activity. This approximation incurs minimal overhead in the time and space complexity compared to similar algorithms, and the calculation of temporal effects remains local to each layer. We characterize the learning performance of our proposed algorithms on multiple SNN model configurations for rate-based and time-based encoding. OTPE exhibits the highest directional alignment to exact gradients, calculated with backpropagation through time (BPTT), in deep networks and, on time-based encoding, outperforms other approximate methods. We also observe sizeable gains in average performance over similar algorithms in offline training of Spiking Heidelberg Digits with equivalent hyper-parameters (OTTT/OSTL - 70.5%; OTPE - 75.2%; BPTT - 78.1%)