Flat tax sustainability in the Euro Zone

• Author: Popescu, D.
• Position: PhD. Student, Lucian Blaga University of Sibiu
• Pages: 149-154

Bulletin of the Transilvania University of Braşov • Vol. 6 (55) •No. 1 - 2013

Series V: Economic Sciences

FLAT TAX SUSTAINABILITY IN

THE EURO ZONE

Diana POPESCU

1

Abstract: This paper explores the sustainability of the flat tax system in the

conditions of euro a doption. Estonia and Slovakia a re the only countries tha t

experience both flat ta x a nd euro. A compar ative ana lysis of flat tax

sustainab ility in Slovakia and Estonia offers th e conclusion that the

Romanian flat tax system is not susta inable from the perspective of the eur o

adoption cr iterion.

Key words: flat tax, euro zone, sustaina bility.

1 PhD. Student, Lucian Blaga University of Sibiu.

1. Introduction

The flat tax “revolution” in the European

Union seems to find its end in the current

economic climate.

Slovakia and the Czech Republic, two of

the eight European Union Countries that

experienced flat tax system, replaced it in

2013 considering that a flat tax rate “does

not have a place in this” (9). So Estonia

remains the only one out of the sixteen

countries from the Eurozone with a flat tax

system.

A question arises: whether flat tax could

be maintained under the condition of EMU

adoption.

The sustainability of the flat tax has

changed from the beginning of its

European experience. Passing through two

big economic crises (the bubble crisis and

the debt sovereign crisis), the European

Union sets strongest fiscal rules for its

EMU members. This is the “world”

mentioned by the Slovakian prime

minister, Fico.

In Section 2 of this article, we review the

economic literature about the sustainability

of the flat tax system and show in Section

3 what has changed in the flat tax

sustainability in Estonia, Slovakia and

Romania, a country that ratified the Fiscal

Compact in 2012. Section 4 treats

supplementary challenges for the flat tax

system under EMU conditions.

In the conclusion, we show that in

Romania, the sustainability of the flat tax

system is not valid, given the conditions of

euro adoption.

2. Flat tax sustainability: a review

There is a rich literature about the

advantages and disadvantages of a flat tax

with a lot of adepts and enemies. Despite

these large emulations, empirical analyses

of the effects of a flat tax reform are very

few. And fewer are the studies about the

sustainability of this system even if we talk

about fiscal sustainability, political

sustainability or social sustainability.

The sustainability aspect of the flat tax

system that is researched here does not

have the classical economic meaning of

sustainability. A single tax from the puzzle

of a national fiscal system cannot count for

sustainability.