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Comparative Characteristics of Progressive and Flat Income Tax Scales

Comparative Characteristics of Progressive and Flat Income Tax Scales

Journal of Institutional Studies, , Vol. 10 (no. 3),

The political dilemma of introducing a progressive income tax in Russia is considered in this article. The role of this tax for the income part of the Russian consolidated budget is revealed, its impact on social inequality is shown. For this purpose, classical and the most recent studies on the relationship of income tax and social inequality have been analyzed. To discuss the appropriateness of the flat income tax scale abolition and its replacement by a progressive, the article proposes a simple two-parameter model that allows for various scenario calculations of tax reform from the point of view of its influence on the budget revenues and social inequality. As a measure of social inequality is considered the Coefficient of funds (Coefficient of Rainbow). In order to carry out macroeconomic estimates correctly, the statistical data on the distribution of income of the population has been carefully calibrated. For this purpose, two calibration conditions were introduced, the implementation of which is mandatory to neutralize the distortion in the applied calculations. This procedure allowed to identify errors in the calculations of the three political factions that support the introduction of a progressive income tax scale (A Just Russia, the LDPR and the Communist party of the Russian Federation). The developed integral criterion and qualitative risk index allow to compare quantitatively different institutional strategies of introduction a progressive income tax scale more objectively. Applied calculations have shown that the introduction of a progressive income tax scale is currently premature and should be postponed until a more appropriate time.

Keywords: progressive income tax; flat income tax scale; budget revenues; social inequality

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