Tax Benefits of the Income Tax Systems of the Baltic States: Comparison and Assessment

The tax systems of the Baltic States-Latvia, Lithuania, and Estonia-each offer distinctive approaches to personal income tax (PIT) relief, balancing economic and social priorities in different ways. Latvia and Lithuania utilize progressive tax systems aimed at reducing income inequality through targeted allowances, while Estonia's flat tax structure emphasizes simplicity and economic efficiency. This article compares and evaluates the PIT relief systems in these countries, examining their theoretical foundations, practical applications, and socioeconomic impacts from 2000 to 2024. The analysis employs theoretical frameworks, case studies, microsimulation models, and cost-benefit and statistical evaluations. The findings reveal that while progressive systems effectively mitigate inequality, they introduce administrative complexity. In contrast, Estonia’s flat-rate system encourages investment and economic activity but falls short of addressing redistributive goals. This comparative analysis highlights the trade-offs inherent in PIT systems and offers insights into optimizing tax policies for balanced economic growth and social equity.