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

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. Economic Change and Restructuring, 48 (2). pp. 169-185. ISSN ISSN 1573-9414

Full content URL: https://link.springer.com/article/10.1007%2Fs10644...

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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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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.

Additional Information:The final published version of this article can be accessed at https://link.springer.com/article/10.1007%2Fs10644-015-9159-5
Keywords:Taxation, Exogenous growth, Informal sector, Labor reallocation, Welfare gains
Subjects:L Social studies > L113 Economic Policy
L Social studies > L130 Macroeconomics
N Business and Administrative studies > N330 Taxation
Divisions:Lincoln International Business School
ID Code:33195
Deposited On:25 Oct 2018 14:02

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