Flat Tax in the See: Has it Reached the Peak?

The paper presents comparative analysis of flat tax systems in transition countries in the light of their departure from Hall-Rabushka model of flat tax. Main findings of some recent empirical research of effects of flat tax in the transition countries are presented. The second part of the paper analysis Hall-Rabushka roots of Croatian income tax and possible equity and efficiency effects of revenue neutral flat tax in that country using average and marginal income tax rates. Revenue neutral reform will probably lead to a rise in average tax rate for most of the incomes, except the highest ones and to the rise in already high total marginal effective tax rates (personal income tax rate, local surcharge, employee social security contributions) for lowest incomes. Combination of higher basic personal allowance with higher flat tax rate could lead to a negative efficiency effects.