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

This study examines whether the Republic of Moldova’s 2018 transitionfrom a progressive income tax system to a flat 12% tax altered the trajectory ofincome inequality. The research objective is to empirically assess both the immediateand long-term distributional effects of the reform. Using Interrupted Time SeriesAnalysis (ITSA) on annual data from 2014 to 2023 and the Gini coefficient ofdisposable income as the primary inequality proxy, the study evaluates changes inboth level and trend before and after the reform. Newey-West standard errors addressmild negative autocorrelation. Results indicate an initial decline in inequalityfollowing the reform, but a subsequent sustained increase, suggesting regressivelong-term effects. The findings show the reform disproportionately benefited high-income earners and weakened the redistributive role of the tax system. Theseoutcomes challenge the presumed neutrality of flat taxes and underscore the need toreintroduce progressive elements for fairer income distribution in Moldova.