From progressive to regressive? Income tax reform and inequality in the Republic of Moldova
From progressive to regressive? Income tax reform and inequality in the Republic of Moldova

Summary/Abstract: This study examines whether the Republic of Moldova's 2018 transition from a progressive income tax system to a flat 12% tax altered the trajectory of income inequality. The research objective is to empirically assess both the immediate and long-term distributional effects of the reform. Using Interrupted Time Series Analysis (ITSA) on annual data from 2014 to 2023 and the Gini coefficient of disposable income as the primary inequality proxy, the study evaluates changes in both level and trend before and after the reform. Newey-West standard errors address mild negative autocorrelation. Results indicate an initial decline in inequality following the reform, but a subsequent sustained increase, suggesting regressive long-term effects. The findings show the reform disproportionately benefited high-income earners and weakened the redistributive role of the tax system. These outcomes challenge the presumed neutrality of flat taxes and underscore the need to reintroduce progressive elements for fairer income distribution in Moldova.

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