ABSTRACT
The proponents of flat taxes place great reliance on the potential economic stimulation that these taxes are assumed to offer. This chapter presents a methodological introduction to the survey of studies on the economic effects of flat taxes. It provides a review of the concepts of efficiency and redistribution and contains a graphic presentation of the channels through which economic effects are generated by various tax reform options. The chapter discusses the implications of tax reform on efficiency and distribution through its effects on enforcement, collection and compliance costs and on incentives for tax evasion. Most of the recent income tax reform proposals involve the supply and allocation of factors of production and, for that reason, are often called supply-side policies. The potential effectiveness of tax reform to encourage savings depends on two interrelated factors: the motivation of individuals and families for saving, and the sensitivity of saving to changes in the after-tax rate of return.
