Journal of Tax Reform
Tax Buoyancy and Economic Growth: Empirical Evidence of Bulgaria
S. Tanchev, I. Todorov
Southwest University “Neofit Rilski”, Blagoevgrad, Bulgaria
Abstract
The study analyzes the long-run and short-run tax buoyancies of Bulgaria and their relationship with Bulgaria’s economic growth. The buoyancy measures the response of tax revenue to changes in economic growth. The buoyancy indicates whether collectability of the tax on income, profit, and consumption increases. The object of this study is the collectability of aggregate tax revenues and of the revenues from different types of taxes – value added tax, personal income tax, corporate tax and social security contributions in Bulgaria. The subject of the study is the relationship of different tax revenues with economic growth. The research methods employed are the fully modified least squares (FMOLS) and autoregressive distributed lag model (ARDL). The research covers the period from the first quarter of 1999 to the second quarter of 2017 and uses the Eurostat data (78 observations). The study aims to show which type of revenues (from direct or from indirect taxes) is more important for Bulgaria’s state budget. It is shown that the buoyancies of aggregate tax revenue, personal income tax and social security contributions significantly differ from one another in the long-run. The buoyancies of the value-added tax and the corporate tax are above one in the long run. In the short-run the buoyancy of the aggregate tax revenues, the corporate tax, the income tax and the social security contributions are different from one. The short-run buoyancy of VAT exceeds one, hence dynamics of VAT revenues is sustainable. The collectability of the aggregate tax revenue, personal income tax and social security contributions has increased neither in the long run nor in the short run. It is therefore recommended that inefficient taxes, whose collectability does not increase, be reformed.
Keywords
tax buoyancy, aggregate tax revenue, direct taxes, indirect taxes, economic growth, fully modified least squares, autoregressive distributed lag model
JEL classification
H24, H25, H63References
1. Barro R. J. Government Spending in a Simple Model of Endogenous Growth. Journal of Political Economy. 1990;98(2):103–125, DOI: 10.1086/261726
2. Stiglitz J. Economics of the Public Sector. New York, London: W.W Notrhon Company; 1994, pp. 540. Available at: https://www.scribd.com/document/359166461/Economics-of-the-Public-Sector-Stiglitz-pdf
3. Sheshinski E. The Optimal Linear Income tax. The Review of Economic Studies. 1972;39(3):297–302. DOI: 10.2307/2296360
4. Mirrlees J. A. An Exploration in the Theory of Optimum Income Taxation. The Review of Economic Studies. 1971;38(2):177–208. Available at: http://people.tamu.edu/~ganli/publicecon/mirrlees71.pdf
5. Hall R., Rabushka A. The Flat Tax in 1995. Hoover Institution, Stanford University. January, 1995. Available at: https://web.stanford.edu/~rehall/All_publications.htm
6. Myles G. Economic Growth and the Role of Taxation. Prepared for the OECD University of Exeter and Institute for Fiscal Studies. 2007, pp. 5–184. Available at: https://people.exeter.ac.uk/gdmyles/papers/pdfs/OECDfin.pdf
7. Hall R. E., Jorgenson D. W. Tax policy and investment behavior. American Economic Review. 1967;57:391–414. Available at: http://piketty.pse.ens.fr/files/HallJorgenson67.pdf
8. Marsden K. Links between taxes and economic growth: some empirical evidence. World Bank Staff Working Papers. 1983;(605). Available at: http://documents.worldbank.org/curated/en/447031468756620681/pdf/multi0page.pdf
9. Koester R. B., Kormendi R. C. Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses. Economic Inquiry. 1989;27(3):367–386. Available at: https://www.questia.com/library/journal/1G1-7817803/taxation-aggregate-activity-and-economic-growth
10. Poterba J. M., Rotemberg J. J., Summers L. H. A tax-based test for nominal rigidities. The American Economic Review. 1986;76(4):659–675.
11. Madsen J., Damania D. The macroeconomic effects of the switch from direct to indirect taxes. An Empirical Assessment. Scottish Journal of Political Economy. 1996;43(5):566–578.
12. Blanchard O., Perroty R. An empirical characterization of the dynamic effects of changes in government spending and taxes on output. Working Paper 7269. July, 1999. DOI: 10.3386/w7269
13. Gordon R. H., Young Lee. Tax Structure and Economic Growth. Journal of Public Economics. 2005;89(5-6):1027–1043. DOI: 10.1016/j.jpubeco.2004.07.002
14. Ilaboya O. J. Indirect Tax and Economic Growth. Research Journal of Finance and Accounting. 2012;3(11):70–82. Available at: https://pdfs.semanticscholar.org/b18d/4e327f9035784fbb669ee7d1a6fe0a40e1c0.pdf
15. Macek R. The Impact of Taxation on Economic Growth: Case Study of OECD Countries. Review of economic perspectives – národohospodářský obzor. 2014;14(4):309–328, DOI: 10.1515/revecp-2015-0002
16. Xing J. Does tax structure affect economic growth? Empirical evidence from OECD countries. Oxford: Oxford University Centre for Business Taxation Saïd Business School; 2011. Available at: https://core.ac.uk/download/pdf/28877848.pdf
17. Mawia M., Nzomoi J. An empirical investigation of tax buoyancy in Kenya. African Journal of Business Management. 2013;7(40):4233–4246. DOI: 10.5897/AJBM2013.7212
18. Ashraf M., Sarwar S. Institutional Determinants of Tax Buoyancy in Developing Nations. Journal of Emerging Economies and Islamic Research. 2016;4(1):1–12. Available at: https://core.ac.uk/download/pdf/154828382.pdf
19. Belinga V., Benedek D., Mooij R. de, Norregaard J. Tax Buoyancy in OECD Countries. IMF Working Paper, WP/14/110, 2014. Available at: https://www.imf.org/external/pubs/ft/wp/2014/wp14110.pdf
20. Omondi O. V., Wawire N. H. W., Manyasa E. O., Thuku G. K. Effects of Tax Reforms on Buoyancy and Elasticity of the Tax System in Kenya: 1963–2010. International Journal of Economics and Finance. 2014;6(10):97–111. DOI: 10.5539/ijef.v6n10p97
21. Timsina N. Tax Elasticity and Buoyancy in Nepal: A Revisit. Economic review. 2010:9–21. Available at: https://www.nrb.org.np/ecorev/pdffiles/vol19_art2.pdf
22. Milambo M. Elasticity and Buoyancy of the Zambia Tax System: Unpublished M.A. Paper. University of Nairobi; 2001.
23. Upender M. Degree of Tax Buoyancy in India: An Empirical Study. International Journal of Applied Econometrics and Quantitative Studies. 2008;5(2):59–70. Available at: http://www.usc.es/economet/reviews/ijaeqs525.pdf
24. Twerefou D. F., Fumey A., Osei-Assibey E., Asmah E. E. Buoyancy and Elasticity of Tax: Evidence from Ghana. Journal of Monetary and Economic Integration. 2010;10(2):36–70. Available at: http://wami-imao.org/sites/default/files/journals/v10n2_unit2.pdf
25. Kusi N. K. (1998). Tax Reform and Revenue Productivity in Ghana. Nairobi: The African Economic Research Consortium; 1998. Available at: https://aercafrica.org/wp-content/uploads/2018/07/RP74.pdf
26. Bayu T. Analysis of Tax Buoyancy and Its Determinants in Ethiopia (Cointegration Approach). Journal of Economics and Sustainable Development. 2015;6(3):182–195. Available at: https://pdfs.semanticscholar.org/58fe/75aeb3bcf962a109b2ec3cf9e62be4c5f15d.pdf
27. Dudine P., Jalles J. How Buoyant is the Tax System? New Evidence from a Large Heterogeneous Panel. IMF Working Paper, WP/17/4, 2017. Available at: https://www.imf.org/en/Publications/WP/Issues/2017/01/20/How-Buoyant-is-the-Tax-System-New-Evidence-from-a-Large-Heterogeneous-Panel-44551
28. Dickey D., Fuller W. Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association. 1979;74(366):427–431. DOI: 10.2307/2286348
29. Johansen S. Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica. 1991;59(6):1551–1580. DOI: 10.2307/2938278
About Authors
Stoyan Tanchev – Assistant Professor, Southwest University “Neofit Rilski“, Faculty of Economics, (66 Ivan Mihailov Str., Blagoevgrad 2700 Bulgaria); ORCID: 0000-0002-4399-8427; e-mail: stoyan_tanchev@yahoo.com
Ivan Todorov – PhD, Head Assistant Professor, Southwest University “Neofit Rilski”, Faculty of economics, (66 Ivan Mihailov Str., Blagoevgrad 2700 Bulgaria); ORCID: 0000-0002-4325-0195; e-mail: ivank.todorov@swu.bg
For citation
Tanchev S., Todorov I. Tax Buoyancy and Economic Growth: Empirical Evidence of Bulgaria. Journal of Tax Reform. 2019;5(3):236–248. DOI: 10.15826/jtr.2019.5.3.070
Article info
Received October 18, 2019; Revised November 20, 2019; Accepted December 3, 2019
DOI: http://dx.doi.org/10.15826/jtr.2019.5.3.070
Download full text article:
~491 KB, *.pdf
(Uploaded
26.12.2019)
Created / Updated: 31 August 2015 / 3 July 2017
© Federal State Autonomous Educational Institution of Higher Education «Ural Federal University named after the first President of Russia B.N.Yeltsin»
Remarks?
select the text and press:
Ctrl + Enter
Portal design: Artsofte
ISSN 2414-9497 (online)