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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 Preprints 144527, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:144527
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    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 and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 48(2), pages 169-185.
    2. Vasilev, Aleksandar, 2020. "A business-cycle model with a modified cash-in-advance feature, government sector and one-period nominal wage contracts: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 6(1(10)), pages 19-38.
    3. 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.
    4. Vasilev, Aleksandar, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 8(2), pages 1-17.
    5. Aleksandar Vasilev, 2020. "Are labor unions important for business cycle fluctuations? Lessons from Bulgaria," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(1), pages 143-161, March.
    6. Vasilev, Aleksandar, 2017. "Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(2), pages 197-219.
    7. Aleksandar Vasilev, 2021. "Progressive taxation and (in)stability in an exogenous growth model with non-market ("home") production," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 64(1), pages 23-37.
    8. 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.
    9. Vasilev, Aleksandar, 2018. "Optimal fiscal policy with utility-enhancing government spending, consumption taxation and a common income tax rate: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 69(1), pages 43-58.
    10. Aleksandar Vasilev, 2016. "Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 59(2), pages 1-15.
    11. Fage Bradley & Vasilev Aleksandar, 2021. "Understanding the Effect of a Soft Drinks Industry Levy on Consumer Well-Being in the UK: First Estimates," Economics, Sciendo, vol. 9(1), pages 25-42, June.
    12. Aleksandar Vasilev, 2021. "Progressive taxation and (in)stability in an exogenous growth model with Epstein-Zin recursive preferences," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 64(1), pages 51-68.
    13. Vasilev, Aleksandar, 2020. "The Armey Curve in Bulgaria (2000-18) – Theoretical Considerations and Empirical Results," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 11(1(21)), pages 19-24.
    14. Vasilev, Aleksandar, 2020. "Indeterminacy with preferences featuring multiplicative habits in consumption: lessons from Bulgaria (1999-2016)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    15. 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.
    16. Vasilev, Aleksandar, 2022. "Optimal fiscal policy in a model with reciprocity in labor relations: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue EarlyCite, pages 1-24.
    17. 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.
    18. Vasilev, Aleksandar, 2022. "A business-cycle model with cash- and credit goods and a modified cash-in-advance feature: lessons for Bulgaria (1999-2020)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 26(1 (forthc), pages 1-13.

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    More about this item

    Keywords

    taxation; endogenous growth; human capital; welfare gains;
    All these keywords.

    JEL classification:

    • 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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