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Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria’s 2008 flat tax reform

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  • Aleksandar Vasilev

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Abstract

This paper provides a quantitative evaluation of the welfare effect of the introduction of proportional taxation in Bulgaria in 2008, an effect that operates through the grey economy channel. Using a general-equilibrium model, augmented with informal sector, a computational experiment is performed to evaluate the welfare gain from the adoption of proportional taxation. The lower effective tax burden in the new tax regime produces a relocation of people into the official sector, stimulates investment, and increases output and consumption. Finally, under the flat tax regime, the size of the informal sector is smaller, and quantitatively consistent with OECD (Is informal normal? Towards more and better jobs in developing countries. OECD, Paris, 2009 ) and European Commission (Tax reforms in EU member states, Official Publications of the European Communities, Luxembourg, p 2012, 2012 ) figures. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Aleksandar Vasilev, 2015. "Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria’s 2008 flat tax reform," Economic Change and Restructuring, Springer, vol. 48(2), pages 169-185, May.
  • Handle: RePEc:kap:ecopln:v:48:y:2015:i:2:p:169-185
    DOI: 10.1007/s10644-015-9159-5
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Vasilev, Aleksandar, 2018. "The role of energy in a real-business-cycle model with an endogenous capital utilization rate and a government sector: lessons from Bulgaria (1999-2016)," EconStor Open Access Articles, ZBW - German National Library of Economics.
    2. Vasilev, Aleksandar, 2018. "A Real-Business-Cycle model with pollution and environmental taxation: the case of Bulgaria," EconStor Open Access Articles, ZBW - German National Library of Economics.
    3. repec:eei:journl:v:61:y:2018:i:2:p:47-76 is not listed on IDEAS
    4. Aleksandar Vasilev, 2017. "Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014)," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 14(2), pages 197-219, December.
    5. Vasilev, Aleksandar, 2018. "Optimal fiscal policy with environmental tax and abatement spending in a model with pollution and utility-enhancing environmental quality: the case of Bulgaria," EconStor Preprints 175661, ZBW - German National Library of Economics.
    6. repec:zbw:espost:169351 is not listed on IDEAS
    7. Vasilev, Aleksandar, 2018. "The role of energy in a real-business-cycle model with an endogenous capital utilization rate and a government sector: the case of Bulgaria (1999-2016)," EconStor Preprints 173966, ZBW - German National Library of Economics.
    8. Vasilev, Aleksandar, 2018. "Progressive taxation and (in)stability in an exogenous growth model with non-market ("home") production," EconStor Preprints 175194, ZBW - German National Library of Economics.
    9. repec:zbw:espost:161620 is not listed on IDEAS
    10. Vasilev, Aleksandar, 2016. "A Real-Business-Cycle model with efficiency wages and fiscal policy: the case of Bulgaria," EconStor Preprints 148413, ZBW - German National Library of Economics.
    11. repec:jes:journl:y:2017:v:8:p:45-77 is not listed on IDEAS
    12. repec:eei:journl:v:60:y:2017:i:2:p:1-13 is not listed on IDEAS
    13. Nadezhda GESHEVA & Aleksandar VASILEV, 2017. "Revisiting the ‘invisible hand’ hypothesis: a comparative study between Bulgaria and Germany," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 8, pages 45-77, June.
    14. Aleksandar Vasilev, 2017. "Progressive taxation and (in)stability in an exogenous growth model with an informal sector," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 60(2), pages 1-13.
    15. Vasilev, Aleksandar, 2017. "Aggregation with sequential indivisible and continuous labor supply decisions and an informal sector," EconStor Open Access Articles, ZBW - German National Library of Economics.
    16. Aleksandar Vasilev, 2017. "A Real-Business-Cycle Model with Reciprocity in Labor Relations and Fiscal Policy: The Case of Bulgaria," Bulgarian Economic Papers (www.bep.bg) bep-2017-03, St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration / Center for Economic Theories and Policies, revised Mar 2017.
    17. repec:zbw:espost:170575 is not listed on IDEAS
    18. Aleksandar Vasilev, 2018. "A Real-Business-Cycle model with reciprocity in labor relations and a government sector," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 61(2), pages 47-76.

    More about this item

    Keywords

    Taxation; Exogenous growth; Informal sector; Labor reallocation; Welfare gains; H22; J46; D51; D91; O41;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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