Working Paper: CEPR ID: DP1151
Authors: Christopher Heady; Stephen Smith
Abstract: This paper analyses the changes to the tax and social security systems that have occurred since Czechoslovakia's `velvet revolution' in 1989. It shows how the tax system is moving to meet the requirements of a market economy. It suggests that a particularly high priority has to be given to avoiding taxes which require administrative discretion and to reducing administrative complexity.A tax-benefit model is used to look at two particular aspects of tax and social security design. It shows that the administratively convenient move to a single-rate VAT could have been achieved without adverse distributional effects, but with a slight increase in overall marginal tax rates. It also analyses the effects of the Czech plan for replacing universal benefits with means-tested benefits. This is shown to reduce budgetary costs and reduce poverty, but at the expense of increasing marginal tax rates.
Keywords: tax reform; fiscal policy; social security; benefits; Czech Republic
JEL Codes: H23; H24; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| single-rate VAT (H25) | distributional effects (D39) |
| single-rate VAT (H25) | overall marginal tax rates (H29) |
| means-tested benefits (I38) | budgetary costs (H61) |
| means-tested benefits (I38) | poverty levels (I32) |
| increased marginal tax rates (H31) | work disincentive for lower-income households (H31) |
| means-tested benefits (I38) | marginal tax rates (H29) |