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The welfare effect of flat income tax reform: the case of Bulgaria

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  • Vasilev, Aleksandar

Abstract

This paper is a first attempt to provide a quantitative evaluation of the welfare gains resulting from the introduction of flat income taxation in Bulgaria in 2008. Using a calibrated micro-founded endogenous growth model with physical and human capital accumulation to Bulgarian data, a computational experiment is performed to quantify the dynamic welfare effect of progressive income taxation vis-a-vis flat income taxation. The model demonstrates that significant welfare gains, measured in terms of per-period consumption, can be realized with the introduction of flat income taxation. In addition, these welfare gains increase proportionally with the length of the time horizon considered. Finally, sensitivity analysis was performed to demonstrate that the results obtained are robust.

Suggested Citation

  • Vasilev, Aleksandar, 2015. "The welfare effect of flat income tax reform: the case of Bulgaria," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 205-220.
  • Handle: RePEc:zbw:espost:141831
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    References listed on IDEAS

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    1. Azacis, Helmuts & Gillman, Max, 2010. "Flat tax reform: The Baltics 2000-2007," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 692-708, June.
    2. Kim J. Ruhl & Juan Carlos Conesa & Timothy J. Kehoe, 2007. "Modeling great depressions: the depression in Finland in the 1990s," Quarterly Review, Federal Reserve Bank of Minneapolis, issue nov, pages 16-44.
    3. Kaloyan Ganev, 2005. "Measuring Total Factor Productivity: Growth Accounting for Bulgaria," GE, Growth, Math methods 0504004, University Library of Munich, Germany, revised 21 Apr 2005.
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    Cited by:

    1. Vasilev, Aleksandar, 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," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 169-185.
    2. Aleksandar Vasilev, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    3. Vasilev, Aleksandar, 2020. "Progressive taxation and (in)stability in an exogenous growth model with Epstein-Zin recursive preferences," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    4. Vasilev Aleksandar, 2018. "Optimal Fiscal Policy with Utility-Enhancing Government Spending, Consumption Taxation and a Common Income Tax Rate: The Case of Bulgaria," Review of Economics, De Gruyter, vol. 69(1), pages 1-16, April.
    5. Aleksandar Vasilev, 2020. "Indeterminacy and Multiplicity of Equilibria in a Two-sector Economy with a Public-sector Production," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 63(1), pages 18-43.
    6. 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.
    7. Vasilev, Aleksandar, 2018. "A business-cycle model with a modified cash-in-advance feature, government sector and one-period nominal wage contracts: the case of Bulgaria," EconStor Preprints 174488, ZBW - Leibniz Information Centre for Economics.
    8. Vasilev, Aleksandar, 2017. "Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014)," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    9. Vasilev, Aleksandar, 2019. "Progressive taxation and (in)stability in an exogenous growth model with non-market ("home") production," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    10. Andrew V. Stephenson, 2018. "The Impact of Personal Income Tax Structure on Income Inequality for Belgium, Bulgaria, Germany, Lithuania, and Poland: A Comparison of Flat and Graduated Income Tax Structures," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 405-417, December.
    11. Vasilev, Aleksandar, 2020. "Indeterminacy with preferences featuring multiplicative habits in consumption: lessons from Bulgaria (1999-2016)," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    12. Vasilev, Aleksandar, 2016. "Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation: the case of Bulgaria," EconStor Preprints 144212, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    Taxation; Endogenous growth; Human capital; Welfare gains;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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