TY  - JOUR
AU  - Gorodnichenko,Yuriy
AU  - Martinez-Vazquez,Jorge
AU  - Peter,Klara Sabirianova
TI  - Myth and Reality of Flat Tax Reform:  Micro Estimates of Tax Evasion Response and Welfare Effects in Russia
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13719
PY  - 2008
Y2  - January 2008
UR  - http://www.nber.org/papers/w13719
L1  - http://www.nber.org/papers/w13719.pdf
N1  - Author contact info:
Yuriy Gorodnichenko
Department of Economics
508-1 Evans Hall #3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510/643-0720
Fax: 510/642-6615
E-Mail: ygorodni@econ.berkeley.edu

Jorge Martinez-Vazquez
Andrew Young School of Policy Studies
Georgia State University
14 Marietta Street, Suite 557
Atlanta, GA 30303-3083
E-Mail: jorgemartinez@gsu.edu

Klara Sabirianova Peter
Andrew Young School of Policy Studies
Georgia State University
P.O. Box 3992, Atlanta, GA 30302-3992
E-Mail: kpeter@gsu.edu
AB  - Using micro-level data, we examine the effects of Russia's 2001 flat rate income tax reform on consumption, income, and tax evasion.  We use the gap between household expenditures and reported earnings as a proxy for tax evasion with data from a household panel for 1998-2004.  Utilizing difference-in-difference and regression-discontinuity-type approaches, we find that large and significant changes in tax evasion following the flat tax reform are associated with changes in voluntary compliance and cannot be explained by changes in tax enforcement policies.  We also find the productivity response of taxpayers to the flat tax reform is small relative to the tax evasion response.  Finally, we develop a feasible framework to assess the deadweight loss from personal income tax in the presence of tax evasion based on the consumption response to tax changes.  We show that because of the strong tax evasion response the efficiency gain from the Russian flat tax reform is at least 30% smaller than the gain implied by conventional approaches.
ER  -