Atlantic Economic Journal

, Volume 46, Issue 4, pp 405–417 | Cite as

The Impact of Personal Income Tax Structure on Income Inequality for Belgium, Bulgaria, Germany, Lithuania, and Poland: A Comparison of Flat and Graduated Income Tax Structures

  • Andrew V. StephensonEmail author


The level of income inequality in a country is usually a contentious and politically divisive issue. How the tax structure affects this inequality is of crucial concern to policymakers. In this paper, we examine the income tax experiences of five European Union countries: Belgium, Bulgaria, Germany, Lithuania, and Poland. This paper focuses on the comparison between flat and graduated personal income tax rate structures. Various methods were used to measure the progressivity of income taxes across these countries such as the average tax rate, cumulative shares of income, and the Gini and other indices. The findings show that the graduated rate income tax structure of Germany and Belgium are the most effective at reducing inequality. On the other hand, Lithuania’s proportional income tax structure is much more effective at reducing income inequality when compared to the graduated rate structure of Poland. Also, an appropriately-sized income tax threshold can transform a flat structure to a redistributive one that compares favorably with some graduated rate structures. In the case of Bulgaria, introducing an income tax threshold that is roughly the size of average income would reduce inequality by about 4 %.


Income inequality Gini Belgium Bulgaria Germany Lithuania Poland 


H24 O15 



The author wishes to thank participants at the 82nd International Atlantic Economic Conference for comments and suggestions. The paper benefited from the comments of the anonymous referees. All errors are my own.


  1. Adhikari, B., & Alm, J. (2016). Evaluating the economic effects of flat tax reforms using synthetic control methods. Southern Economic Journal, 83(2), 437–463.CrossRefGoogle Scholar
  2. Alm, J., Lee, F., & Wallace, S. (2005). How fair? Changes in federal income taxation and the distribution of income, 1978 to 1998. Journal of Policy Analysis and Management, 24(1), 5–22.CrossRefGoogle Scholar
  3. Alstadsæter, A., Johannesen, N., & Zucman, G. (2017). Tax evasion and inequality (Working Paper No. 23772). National Bureau of Economic Research.
  4. Andreoni, J., Erard, B., & Feinstein, J. (1998). Tax compliance. Journal of Economic Literature, 36(2), 818–860.Google Scholar
  5. Binelli, C., & Attanasio, O. (2010). Mexico in the 1990s: the Main cross-sectional facts. Review of Economic Dynamics, 13(1), 238–264.CrossRefGoogle Scholar
  6. Cebula, R. J., & Feige, E. L. (2012). America’s unreported economy: measuring the size, growth and determinants of income tax evasion in the U.S. Crime, Law and Social Change, 57(3), 265–285.CrossRefGoogle Scholar
  7. De Agostini, P., Myck, M., & Paukszteło, W. (2017). Poland 2014–2017. EUROMOD Country Report, University of Essex.Google Scholar
  8. De Maio, F. G. (2007). Income inequality measures. Journal of Epidemiology and Community Health, 61(10), 849–852.CrossRefGoogle Scholar
  9. Dolls, M., Fuest, C., & Peichl, A. (2012). Automatic stabilizers and economic crisis: US vs. Europe. Journal of Public Economics, 96, 279–294.CrossRefGoogle Scholar
  10. Duncan, D., & Sabirianova Peter, K. (2016). Unequal inequalities: do progressive taxes reduce income inequality? International Tax and Public Finance, 23(4), 762–783.CrossRefGoogle Scholar
  11. EUROMOD. (2017). EUROMOD Hypothetical Household Tool (HHoT). User manual (EUROMOD Technical Note No. EMTN 4.0).Google Scholar
  12. EUROMOD (2018). HHoT manual and households. Retrieved May 31, 2018, from
  13. Fuchs-Schündeln, N., Krueger, D., & Sommer, M. (2010). Inequality trends for Germany in the last two decades: a tale of two countries. Review of Economic Dynamics, 13(1), 103–132.CrossRefGoogle Scholar
  14. Heathcote, J., Perri, F., & Violante, G. L. (2010). Unequal we stand: an empirical analysis of economic inequality in the United States, 1967–2006. Review of Economic Dynamics, 13(1), 15–51.CrossRefGoogle Scholar
  15. Hufkens, T., Maes, S., Cant, L. V., Vanhille, J., & Vanheukelom, T. (2017). Belgium 2014–2017. EUROMOD Country Report, University of Essex.Google Scholar
  16. Idrees, M., & Ahmad, E. (2017). Measurement of income inequality: a survey. Forman Journal of Economic Studies, 13, 1–32.CrossRefGoogle Scholar
  17. International Labour Organisation, Commonwealth of Independent States, Organisation for Economic Co-operation and Development, & International Monetary Fund. (2002). Measuring the Non-observed Economy : A Handbook. Paris, France: International Monetary Fund.Google Scholar
  18. Kakwani, N. C. (1977). Measurement of tax progressivity: an international comparison. The Economic Journal, 87(345), 71–80.CrossRefGoogle Scholar
  19. Kula, M. C., & Millimet, D. L. (2010). Income inequality, taxation, and growth. Atlantic Economic Journal, 38(4), 417–428. Scholar
  20. Ledbetter, M. (2007). Comparison of BEA estimates of personal income and IRS estimates of adjusted gross income. Survey of Current Business. Retrieved from
  21. Loudermilk, B. (2017). The world’s highest taxed countries. Retrieved November 1, 2018, from
  22. Musgrave, R. A., & Thin, T. (1948). Income tax progression, 1929-48. Journal of Political Economy, 56(6), 498–514.CrossRefGoogle Scholar
  23. Navickė, J., & Čižauskaitė, A. (2017). Lithuania 2014–2017. EUROMOD Country Report, University of Essex.Google Scholar
  24. Organization for Economic Co-operation and Development. (2002). Measuring the non-observed economy : A handbook. Paris: OECD Publications Service Scholar
  25. Peichl, A. (2009). The benefits and problems of linking micro and macro models – Evidence from a flat tax analysis. Journal of Applied Economics, 12, 301–329.CrossRefGoogle Scholar
  26. Petroff, A. (2016). Belgium has the highest income taxes in the developed world. Retrieved November 1, 2018, from
  27. Poterba, J., & Sinai, T. (2008). Tax expenditures for owner-occupied housing: deductions for property taxes and mortgage interest and the exclusion of imputed rental income. American Economic Review, 98(2), 84–89.CrossRefGoogle Scholar
  28. Schuetze, C. F. (2017). Talk of economic inequality surfaces in the German election | Best Countries | US News. Retrieved November 2, 2018, from
  29. Stiglitz, J. E. (2012). The price of inequality: How today’s divided society endangers our future. Page lvi: WW Norton & Company.Google Scholar
  30. Trading Economics. (2018). Retrieved May 30, 2018, from
  31. Vasilev, A. (2015). Welfare effect of flat income tax reform: the case of Bulgaria. Eastern European Economics, 53(3), 205–220.CrossRefGoogle Scholar
  32. Weller, C. E., & Rao, M. (2010). Progressive tax policy and economic stability. Journal of Economic Issues, 44(3), 629–659.CrossRefGoogle Scholar
  33. Williams, C., Bejaković, P., Mikulić, D., Franic, J., Kedir, A., & Horodnic, I. A. (2017). An evaluation of the scale of undeclared work in the European Union and its structural determinants: estimates using the labour input method (SSRN Scholarly Paper No. ID 3092080). Rochester: Social Science Research Network Retrieved from

Copyright information

© International Atlantic Economic Society 2019

Authors and Affiliations

  1. 1.School of BusinessGeorgia Gwinnett CollegeLawrencevilleUSA

Personalised recommendations