Latvia Stumbling Towards Progressive Income Taxation: Episode II

This policy brief uses EUROMOD-LV model to analyze the distributional effects of the 2018 Tax Reform in Latvia. There are two main findings. The planned changes in the basic tax allowance will to some extent help to reduce the tax wedge on low wages. At the same time, the progressive tax rate, the way it is designed, will effectively lead to an across-the-board reduction of the tax burden on labour and will hardly help to reach the proclaimed objective of taxing incomes progressively