Spanish lessons

The Stupid Party is setting up a commission to investigate the desirability of a flat tax. One of the first things the commission should do is read this recent paper (pdf) by Marta Gonzales and Josep Pijoan-Mas. They show that a revenue-neutral flat tax in Spain could raise productivity without increasing inequality.
Of course, the Spanish tax system is different to ours, so the results don't translate directly to the UK. But there are lessons in the paper:
1. It describes how we should set about analyzing the issue.
2.It disposes of two common arguments against a flat tax - that it is necessarily inegalitarian and is only applicable to post-communist economies rather than maturer capitalist ones.
3. It shows that there is a potential trade-off between efficiency gains and equality. To maximize  efficiency gains, a flat tax should have low marginal tax rates. But that means low allowances, which is more regressive than the current system. A more egalitarian flat tax would have bigger allowances which means higher marginal tax rates. But this reduces the efficiency gains.
However, Gonzales and Pijoan-Mas show that the current Spanish tax system is sufficiently bad that it's possible to increase both equality and efficiency, and this trade-off merely applies to how we apportion the gains.
The question for the Stupid Party's commission is: what exactly are the differences between the UK and Spain that mean results for the UK will be substantially different from this?

Comments

[dsquared]

To maximize efficiency gains, a flat tax should have low marginal tax rates. But that means low allowances, which is more regressive than the current system. A more egalitarian flat tax would have bigger allowances which means higher marginal tax rates. But this reduces the efficiency gains

I have a solution to this problem! You could have a system with multiple "flat" tax rates, kicking in at different income levels! I even have a name for it - a "progressive tax system".

[EU Serf]

Slash useless wasteful state spending and we could have a flat tax with high allowances and a low rate.

By the way, the fact that we are even considering Ken Clarke, makes the name Stupid Party well deserved.

[Andrew]

Serf: But we aren't really, are we? The media are, but they all vote Lib Dem anyway.

[BishopHill]

As the Apollo project showed recently, the policies of the Tory Reform Group (and therefore KC) are quite acceptable to LibDems. This would explain why the media support Ken - because they want there to be two parties led by LibDems.

http://liberalism2010.blogspot.com/2005/09/liberal-principles-part-2.html