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


  • Hassan, Fareed M. A.


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).

Suggested Citation

  • Hassan, Fareed M. A., 1998. "Revenue-productive income tax structures and tax reforms in emerging market economies - evidence from Bulgaria," Policy Research Working Paper Series 1927, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1927

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    References listed on IDEAS

    1. 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.
    2. 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.
    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. 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.
    5. Richard M. Bird, 2014. "Administrative Dimensions of Tax Reform," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 963-992, November.
    6. Bogetic, Zeljko & Hillman, Arye L., 1994. "The tax base in transition : the case of Bulgaria," Policy Research Working Paper Series 1267, The World Bank.
    7. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-178, Winter.
    8. Sicat, Gerardo P & Virmani, Arvind, 1988. "Personal Income Taxes in Developing Countries," World Bank Economic Review, World Bank Group, vol. 2(1), pages 123-138, January.
    9. Morrissey, Oliver, 1995. "Political commitment, institutional capacity and tax policy reform in Tanzania," World Development, Elsevier, vol. 23(4), pages 637-649, April.
    10. Milanovic, Branko, 1995. "Poverty, inequality, and social policy in transition economies," Policy Research Working Paper Series 1530, The World Bank.
    11. repec:taf:ceasxx:v:48:y:1996:i:4:p:629-646 is not listed on IDEAS
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