Over this long history, Progressives have generally been the most ardent supporters of this bracketed structure, doing so on the basis that it places a greater tax burden on the rich and a lower one on the working and middle classes. A system that is easy enough to wrap your head around (although a surprising number of Americans don’t). The general details of which have been as follows… Income is separated by brackets, with the first bracket of income being fully exempt from taxation and all following brackets of income being taxed at incrementally rising rates. When the flat tax was abandoned in favor of a progressive tax structure, hours worked also decreased, but less than when the flat tax was introduced, and significantly less than predicted by the model.Since the creation of the Income Tax in 1861, it has consistently had a progressive structure. However, the findings show that when Slovakia replaced its progressive tax with a flat one, the actual hours worked decreased, contrary to predictions. Theoretically, the incentive to work increases when a progressive tax structure is replaced with a flat tax, while the incentive to work decreases in the opposite case. In Slovakia, there was a transition from a progressive to a flat tax system in 2004, followed by a reversion back to a progressive tax system in 2013. Using national accounts data and the Prescott’s (2004) labor market model, Slovakian work hours were examined at points in time around the adoption of a flat tax system in 2004 and a progressive tax system in 2013. To measure the impact of taxes on the incentive to work under both scenarios, we relate hours worked with the effective marginal tax rates. Of particular interest are the changes from progressive-to-flat and flat-to-progressive tax conditions. This study examines the impact of taxes on the incentive to work under flat and progressive tax systems.
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