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Determinants of the Proportional Income Tax Revenue: A Comparative Assessment of Russia and Bulgaria

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  • Stoyan Tanchev

Abstract

Initially flat-rate income taxes only existed in tax havens, but presently, 26 countries have adopted the proportional tax as a fiscal instrument to increase budget revenues and accelerate economic growth. This article empirically examines the determinants affecting the revenues from a proportional income tax with non-taxable minimum (negative flat tax) used in Russia and a proportional income tax without non-taxable minimum (pure flat tax) used in Bulgaria. The research objective is to estimate the impact of the macroeconomic variables such as gross disposable income, employment, gross capital formation and government expenditures on the revenue from the proportional income tax in Russia and Bulgaria. The study employs an ordinary least square (OLS) method and quarterly seasonally adjusted data for the period 2008–2020. For Russia, quarterly seasonally adjusted data for the period from March 2008 till December 2020 were used, including 52 observations. For Bulgaria, quarterly seasonally adjusted data for the period from March 2008 till March 2020 were used, including 49 observations. Basing on the results, it may be inferred that the increase of the gross disposable income and higher marginal tax rate of the proportional tax with a non-taxable minimum collect more nominal revenue in the budget, as Russia’s example showed. The increase of the employment related with a lower marginal tax rate of the proportional income tax without a non-taxable minimum collect less nominal revenue as Bulgaria’s example shows. A standpoint of the revenue in the budget the proportional income tax with non-taxable minimum is more effective than proportional income tax without non-taxable minimum.

Suggested Citation

  • Stoyan Tanchev, 2022. "Determinants of the Proportional Income Tax Revenue: A Comparative Assessment of Russia and Bulgaria," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 8(1), pages 54-68.
    • Handle: RePEc:aiy:jnljtr:v:8:y:2022:i:1:p:54-68
    DOI: https://doi.org/10.15826/jtr.2022.8.1.108
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    References listed on IDEAS

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    1. Andreas Peichl, 2014. "Flat-rate tax systems and their effect on labor markets," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-61, October.
    2. repec:iza:izawol:journl:y:2014:p:61 is not listed on IDEAS
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    More about this item

    Keywords

    tax revenue; proportional income tax; negative flat tax; pure flat tax; OLS method;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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