IMF Working Papers

The paper reviews Slovakia's comprehensive reforms to its taxation and welfare systems in 2004, including the introduction of a flat-rate income tax and single-rate value-added tax (VAT), and linkage of social benefits to participation in labor market programs. Though revenues following the reform are lower as a ratio to GDP, the paper argues that the reforms have helped encourage investment and improved efficiency by broadening the tax base, reducing the administrative burden, and improving work incentives. The paper also looks at some implications of the reforms for income distribution and social protection.