Abstract

This article 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 microfounded endogenous
growth model with physical and human capital accumulation and Bulgarian data, a computational
experiment is performed to quantify the dynamic welfare effect of progressive income taxation vis-àvis
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