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Revenue-productive income tax structures and tax reforms in emerging market economies - evidence from Bulgaria

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  • Hassan, Fareed M. A.
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    Abstract

    Using a household budget survey for 1992, The author shows the poor revenue performance and distributional impact of Bulgaria's personal income tax system. He explores the implications for revenue and income distribution of two alternative tax systems - a flat tax and a progressive but simpler three-brackets tax system. He demonstrates that simpler tax structures with lower tax rates could achieve at least equal revenue and distributional objectives and are superior in terms of efficiency and equity. (The findings are robust when Bulgaria's significant tax evasion is included). But tax changes since 1992 have, if anything, moved Bulgaria even further from a simple income tax system: the number of rates and brackets increased from 7 to 10, and the levels of exemption remain unchanged. (Complex, higher rates complicate administration and enforcement and provide incentives for tax evasions. And in the alternative systems the author explores, the poor are protected with higher exemptions.) Fortunately, the country's personal income tax structure began to move toward less nominal progressivity after Bulgaria's 1997 tax reform program. The tax rate in thetop income bracket was reduced from 52 percent to 40 percent, the number of tax brackets was halved, and the exemption level was increased 20 percent (reducing tax burdens on the poor).

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1927.

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    Date of creation: 30 Jun 1998
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    Handle: RePEc:wbk:wbrwps:1927

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    Related research

    Keywords: Environmental Economics&Policies; Public Sector Economics&Finance; Regional Governance; Tax Policy and Administration; Economic Theory&Research; Governance Indicators; Economic Theory&Research; Public Sector Economics&Finance; Environmental Economics&Policies; Tax Policy and Administration;

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    1. Joel Slemrod, 1989. "Optimal Taxation and Optimal Tax Systems," NBER Working Papers 3038, National Bureau of Economic Research, Inc.
    2. repec:imf:imfpdp:9308 is not listed on IDEAS
    3. Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
    4. Richard M. Bird, 2003. "Administrative Dimensions of Tax Reform," International Tax Program Papers 0302, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised May 2003.
    5. Nada Eissa, 1996. "Tax Reforms and Labor Supply," NBER Chapters, in: Tax Policy and the Economy, Volume 10, pages 119-151 National Bureau of Economic Research, Inc.
    6. Nada Eissa, 1995. "Taxation and Labor Supply of Married Women: The Tax Reform Act of 1986 as a Natural Experiment," NBER Working Papers 5023, National Bureau of Economic Research, Inc.
    7. Bogetic, Zeljko & Hillman, Arye L., 1994. "The tax base in transition : the case of Bulgaria," Policy Research Working Paper Series 1267, The World Bank.
    8. Morrissey, Oliver, 1995. "Political commitment, institutional capacity and tax policy reform in Tanzania," World Development, Elsevier, vol. 23(4), pages 637-649, April.
    9. Sicat, Gerardo P & Virmani, Arvind, 1988. "Personal Income Taxes in Developing Countries," World Bank Economic Review, World Bank Group, vol. 2(1), pages 123-38, January.
    10. Milanovic, Branko, 1995. "Poverty, inequality, and social policy in transition economies," Policy Research Working Paper Series 1530, The World Bank.
    11. Myles, Gareth D. & Naylor, Robin A., 1996. "A model of tax evasion with group conformity and social customs," European Journal of Political Economy, Elsevier, vol. 12(1), pages 49-66, April.
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