The impact of the flat tax reform. The case of Romania

In this paper we focused on the flat tax impact on inequality in Romania. We
compared 2005 against 2004, when we were able to isolate the flat tax impact from
other factors. We found that the higher the gross wage is, the higher the flat tax gains
are. The inequality indicators we calculated (the Gini index, the relative mean
deviation, the coeficient of variation, the standard deviation of logarithms, the Mehran
index and the Piesch index) show an increase in inequality determined by the flat tax.
The Lorenz curve is illustrative, as only the last quantile of the population (richest
20%) appears as the clear winner of the flat tax.  The results also indicate that the
higher the income level, the higher the income elasticity of consumption.
We conclude that the flat tax led to increased income inequality and it stimulated
households consumption particularly among the wealthiest households.

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