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Macroeconomics Case Study

Case Title:

Progressive Tax System vs. Flat Tax Regime: Weighing the Options

Publication Year : 2005

Authors: Susmita Nandi, Sumit Kumar Chaudhuri

Industry: General Business


Case Code: MEBE0025

Teaching Note: Available

Structured Assignment: Available

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Abstract: While most of the nations are under the progressive tax system, in which rich people pay a proportionately greater amount of tax than the poorer sections, the Baltic nations of Estonia, Latvia and Lithuania and others like Russia and Hong Kong seem to be thriving under the flat-rate tax regime. Motivated by the successful implementation of the flat-rate tax system, many countries, like Sweden, Poland, the Czech Republic, and the UK have been deliberating whether or not to experiment with the newer tax structure and whether it would be as effective in their economies as in the Baltic and other nations.

Pedagogical Objectives:

  • To understand the theory of taxation
  • To anlayse progressive and flat rate tax systems
  • To study Laffer curve and asses the impact of differences between corporate taxes across the world on investment decisions.

Keywords : Progressive rate tax; Flat rate tax; Tax avoidance and tax evasion; Gross Domestic Product (GDP); Foreign investment; Capital gain, dividend and interest earnings; Index of Economic Freedom; Adam Smith?s ?cannons of taxation?; Marginal tax rate

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