Economics: A fiscal revolution is sweeping westward across Europe, having been enthusiastically embraced by a host of countries that once were part of the former Soviet bloc.

Indeed, Russia itself has joined its former satellites in adopting this new economic model.

The concept is the flat tax, a single tax rate levied on incomes, replacing the plethora of rates, bands and allowances characterising most existing income tax systems.

Estonia was the first European economy to embrace the flat tax over 10 years ago, to be followed in time by its Baltic neighbours, Latvia and Lithuania.

The change was so successful that now nine European countries have adopted the model, although so far it has failed to register on the political landscape in the more developed economies of the continent.

This could be about to change however, as Angela Merkel, the likely winner of the upcoming German election, has named a flat tax advocate as her preferred choice for finance minister.

Greece, too, is reported to be giving the tax serious consideration. It all smacks of an idea whose time has come, so the rest of the euro zone may well have to sit up and take notice.

There are three variants of the flat tax concept. In its purest form, everything is taxed at the same flat rate - income, spending and capital.

Slovakia has gone down this route, with a 19 per cent flat rate extending from income tax through Vat to corporation tax.

However, most countries that have adopted the model limit it to the taxation of income and here there are two options.

The simplest is to abolish all allowances and tax gross income at the flat tax rate. The alternative is to grant some basic allowances and then tax the net income figure.

Hong Kong offers both variants, allowing individuals to choose whether to avail of allowances or to pay a flat-rate tax on gross income. The arguments in favour of the tax largely concerns efficiency and incentivisation.

Most modern tax systems may have started out as relatively simple, but over time governments tend to add exemptions and allowances by the score, with the result that modern income tax systems are extraordinarily complex. This offers employment to an army of tax consultants and accountants, but also represents a large compliance cost to individuals and companies and requires battalions of civil servants to administer the system.

Far better, it is claimed, to abolish all or virtually all allowances and exemptions, and to tax the remaining income at a single rate, which would simplify the whole system and therefore free up resources in both the public and private sectors for more productive use.

Few if any flat tax advocates would lobby for a 50 per cent tax rate, as the other main argument used in its favour revolves around incentives and the benefits of a low tax on income.

A tax in any form tends to lower supply and distort the market, so if one must have a tax, the argument goes, make it as low as possible.

A low flat tax rate on income would encourage people to work rather than stay idle, to invest, to take additional job responsibility and to start up businesses.

Compliance is also likely to be higher in a simple tax system that takes 15-20 per cent of an income than in one that takes 50 per cent.

Objections to the flat tax largely centre on the idea of income redistribution, which is a feature of most income tax systems in the developed Western world.

This idea is that people with high incomes should not only pay more tax than those with lower incomes - a flat tax would achieve this - but that they should pay proportionately more.

For example, a single person in Ireland working in the private sector would currently pay no tax on earnings of €12,000 a year, 8.5 per cent of income if earning €20,000 and 24 per cent if on an income of €40,000.

A flat tax could still result in different effective tax rates of course, by encompassing an exemption limit and allowances for specific circumstances.

However, the beauty of the system is its simplicity, which would be compromised by too many exceptions, thereby moving it back towards the more complex model currently operating.

What might such a system look like in Ireland? The standard tax rate here is 20 per cent, with a 42 per cent top rate, but an examination of data released by the Revenue Commissioners implies that the same amount of revenue could have been raised by a flat tax on taxable income of between 16 and 19 per cent.

One doubts if any of the major political parties will campaign on this fiscal slogan, but the success of the flat tax elsewhere may at least focus attention on Ireland's top rate of tax, which is 48 per cent if one includes PRSI and the health levy and therefore high when compared with the 13-24 per cent flat rates elsewhere in Europe.

Dr Dan McLaughlin is chief economist, Bank of Ireland