Date of Award

3-2025

Access Control

Campus-Only Access

Degree Name

Applied Economics, M.A.

Department

Economics and Finance

Advisor

Frederick Floss

Department Home page

https://economics.buffalostate.edu/

First Reader

Frederick Floss

Second Reader

Joelle Leclaire

Third Reader

Theodore Byrley

Abstract

ABSTRACT

This paper presents and analyzes a comparative case study of progressive and flat tax systems with an emphasis on the economies of Albania, Greece, and Estonia while incorporating Poland and Switzerland for added understanding. As a transitional economy that was isolated under communism for many years, Albania faces problems in its ability to levy taxes and collect revenues, raising concerns over the flat tax proposed by the government. Even now, as an EU member, Greece struggles with high personal income tax rates, tax evasion, and fiscal deficit problems, while Estonia has implemented a smart and effective tax structure that has positioned the country well economically. By employing multiple regression models to analyze tax rates, unemployment rates, inflation business expansions, and FDI, the study reveals a highly sensitive relationship between taxation systems and GDP growth. Net FDI emerged as the dominant variable, with a 1 percent increase in FDI leading to a 0.3 percent increase in GDP growth, most evident in Albania and Estonia. Unemployment significantly and negatively correlates with GDP growth, with the worst correlation observed during the Greek crisis. Tax systems displayed varied effects: the flat tax in Albania showed moderate growth prospects, while Estonia’s taxation system demonstrated balance. Budget deficits were destructive to the Greek economy but had minimal impact on the more pragmatic Estonian one. An important factor in GDP growth was business enlargement, underscoring the importance of favorable business environments, particularly in Estonia. The results suggest that flat tax structures provide simple, certain taxation regimes but may offer limited solutions for equity and revenue generation in transitional environments like Albania. On the other hand, progressive tax systems are fair, ensuring that everyone pays according to their ability, but they can become very complicated to manage. Based on Albania's fiscal environment, this study proposes enhancing FDI, addressing unemployment through structural changes, improving tax efficiency, and implementing policies for business enlargement. These findings contribute valuable insights into sound macroeconomic development and broader fiscal policy reform debates in transitional and developing countries.

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