The Income Redistribution Effect of the Flat Tax: The Empirical Evidence from Russia

This study analyzes the income redistribution effects of Russia’s flat tax reform using the 2000–2019 Russian Longitudinal Monitoring Survey – Higher School of Economics (RLMS-HSE) database and the MT index decomposition method. We find that Russia’s flat tax reform has a very limited impact on narrowing the income gap among residents. A step-by-step decomposition of the overall effects for the income redistribution reveals that both the tax rate structure and the personal income tax deduction policies under Russian flat tax system are unfavorable for achieving an equitable income redistribution. The trend in tax share changes across different income groups reveals that, in the early stages of the reform, Russia’s flat tax system increases the tax burden on middle-income groups while reducing it for high-income group; in the later stages, the tax burden on low-income groups rises, while that on high-income group continues to decrease, further confirming that the flat tax reform in Russia has been unfavorable in reducing the level of income inequality among residents.