Public Finance

aje on February 7, 2020

Case: “Rovna Dan: The Flat Tax in Slovakia”, Harvard Business School case no. 9-707-043, March 2010

Textbook Reading: Chapter 7 (Intro, Section 7.1 and 7.2; pp. 199-216)

In 2011 the Mirrlees Review published ‘Tax by Design‘, a comprehensive overview of UK tax reform.

In terms of a flat tax, here is a short video asking  “Would a Flat Tax Be More Fair?” There’s a good HBS article, from 2007, called “All Eyes on Slovakia’s Flat Tax”. Slovakia repealed the flat tax in January 2013, by adding an additional rate of 25% for incomes over €38k. You can read about on this LSE Blog: “Slovakia has abolished its flat tax rate, but other Eastern and Central European countries are likely to continue with the policy.”

Here are some newspaper attempts to explain fiscal implications of tax policy:

Regarding public finance more generally, in 2012 I participated in the 2020 Tax Commission. You can read our report here.

Regarding tax compliance, you may hear things like:

Apple can pretty much choose how much tax it wants to pay and to whom. One EU estimate was that it paid less than 0.01% tax on profits of over $100 billion (Frisby 2019, p.175)

This may be true, but I do not think that this means that tax is voluntary. The choice that Apple have is over what activities they undertake, each of which have different tax implications. So they can affect their tax obligations, but only in as much as they alter their business decisions.

In his 2023 book, ‘The Crisis of Democratic Capitalism’, Martin Wolf identifies the following two problems with the existing tax code:

  • That interest on debt is tax deductible – this incentives firms to favour debt over equity
  • That “carried interest” is exempt from income tax, even though it operates more like income than a capital gain (since the downside is capped at zero). This is a favoured means of compensation for general partners in private equity or hedge funds.
  • For more Wolf, M., 2023, The crisis of democratic capitalism, Allen Lane, p. 167-168, p. 290
Group activity: Personal Taxation, December 2020
Learning Objectives: Understand alternative types of tax regime.

Focus on diversity: Harriet Martineau (1802-1876) is best known as a pioneer of sociology, but contributed to the populising of classical economic insights on taxation.