Journal of Tax Reform
How the proportional income taxation increases inequality in Bulgaria
S. Tanchev
Southwest University “Neofit Rilski”, Blagoevgrad, Bulgaria
Abstract
The proportional income tax is popular in countries of Central and East Europe and 14 CEE countries adopted it with different tax rates from 1994 till 2008 year. But four of them have replaced it with the progressive tax yet. The main criticisms towards the proportional income tax is that it leads to an increase of the inequality after taxation. The article aims to evaluate the impact of the proportional income tax without non-taxable minimum on inequality in Bulgaria, measured by the Gini index. The relationship between the Gini index and the growth rates of GDP per capita, the gross average income and net average income was studied. The methods of Ordinary Least Square (OLS) and correlation were applied to determine the impact of proportional income tax on income inequality in Bulgaria. The research covers the period from 2008 till 2019. National statistical institute of Bulgaria data (12 observations) has been used. The empirical results confirm positive relationship between Gini index and the growth rates of GDP per capita, the gross average income and net average income in system of proportional income tax. Inequality in Bulgaria had increased by 22% after introducing the proportional income tax in 2008, the highest incomes have increased by 113% and the lowest only by 85%. The results of the study show that the increase of the gross average income and net average income leads to increase of the inequality measured with Gini index. Therefore, after taxation of incomes with proportional income tax the inequality does not decrease, but continues to increase. It may be inferred that the proportional taxation increase inequality in Bulgaria.
Keywords
proportional income tax, inequality, Gini index, OLS method, Bulgaria
JEL classification
H21, H24, D50References
1. Popescu M., Militaru E., Stanila L., Vasilescu M., Cristescu A. Flat-Rate versus Progressive Taxation? An Impact Evaluation Study for the Case of Romania. Sustainability. 2019;11(22):6405. https://doi.org/10.3390/su11226405
2. Ferreira Z., Veiga F. The Revolution of the Tax System based on Flat Tax. Athens Journal of Law. 2019;2(4):253–268. https://doi.org/10.30958/ajl.2-4-4
3. Hal R., Rabushka A. The Flat Tax. 2nd ed. Stanford, CA: Hoover Institution Press; 1995. Available at: https://www.hoover.org/research/flat-tax
4. Peichl A. Flat-rate tax systems and their effect on labor markets. IZA World of Labor. 2014:61. https://doi.org/10.15185/izawol.61
5. Keen M., Kim Y., Varsano R. The “Flat Tax(es)”: Principles and Evidence. IMF Working Paper WP/06/218, 2006. 51 p. Available at: https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Flat-Tax-es-Principles-and-Evidence-19892
6. Ambrus A. The advantages and backdraws of the flat-rate personal income tax. Journal of International Studies. 2012;5(2):47–57. https://doi.org/10.14254/2071-8330.2012/5-2/5
7. Kahanec M., Guzi M., Martišková M., Paleník M., Pertold F., Siebertová Z. Gini Country Report Czech Republic and Slovakia. CELSI Research Reports No. 7. 2013. 171 p. Available at: https://www.celsi.sk/en/publications/research-reports/detail/2/gini-country-report-the-czech-republic-and-slovakia/
8. Krajňák M. Evaluation the impact of the personal income tax reform in the Czech Republic in 2021 on effective tax rate and tax progressivity. Journal of Tax Reform. 2021;7(2):134–145. https://doi.org/10.15826/jtr.2021.7.2.094
9. Vegh C., Vuletin G. How is tax policy conducted over the business cycle? NBER Working Paper. National Bureau of Economic Research; 2012. 53 p. https://doi.org/10.3386/w17753
10. Zee H., Tanzi V. Tax Policy for Emerging Markets: Developing Countries. IMF Working Paper No. 00/35, 2000. 34 p. Available at: https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Tax-Policy-for-Emerging-Markets-Developing-Countries-3471
11. Duncan D., Peter K. Unequal Inequalities: Do Progressive Taxes Reduce Income Inequality? IZA Discussion Paper No. 6910, 2012. 64 p. Available at: https://docs.iza.org/dp6910.pdf
12. Gunov T., Belukhova-Uzunova R. Income Inequality in Bulgaria After the Accession to the European Union, Scientific Works. Academic Publishing House of the Agricultural University – Plovdiv. 2018;2:97–104. Available at: http://nauchnitrudove.au-plovdiv.bg/18_02_10/
13. Moździerz A. Tax Policy and Income Inequality in the Visegrad Countries. Naše gospodarstvo/Our Economy. 2015;61(6):12–18. https://doi.org/10.1515/ngoe-2015-0022
14. Kozuharov S., Petkovski V., Ristovska N. The impact of taxes measured by Gini index in Macedonia. UTMS Journal of Economics. 2015;6(1):41–52. Available at: https://www.utmsjoe.mk/files/Vol.%206%20No.%201/6-1-3-UTMS_Journal_of_Economics.pdf
15. Mihaylova S., Bratoeva-Manoleva S. Social Transfers and Income Inequality in Bulgaria. South East European Journal of Economics and Business. 2017;12(1):38–49. https://doi.org/10.1515/jeb-2017-0003
16. Hallaert J. Inequality, Poverty, and Social Protection in Bulgaria. IMF Working Paper, WP/20/147, 2020. 34 p. Available at: https://www.imf.org/en/Publications/WP/Issues/2020/07/31/Poverty-and-Social-Protection-in-Bulgaria-49552
17. Cohen S. The Vanishing Case for Flat Tax Reform: Growth, Inequality, Saving, And Simplification. Valparaiso University Law Review. 1999;33:819–853. Available at: https://scholar.valpo.edu/vulr/vol33/iss3/2
18. Biswas S., Chakraborty I., Hai R. Income Inequality, Tax Policy, and Economic Growth. The Economic Journal. 2017;127(601):688–727. https://doi.org/10.1111/ecoj.12485
19. Ilie S. Income Inequalities in Romania in the Aftermath of the 2008 Economic Crisis. Romanian Journal of Economic Forecasting. 2020;23(2):115–130. Available at: https://ipe.ro/rjef/rjef2_20/rjef2_2020p115-130.pdf
20. Arandarenko M., Krstić G., Rakić J. Analysing Income Inequality in Serbia: From Data to Policy. Belgrade: Friedrich-Ebert-Stiftung; 2017. 8 p. Available at: https://library.fes.de/pdf-files/bueros/belgrad/14010.pdf
21. Krstić G. Why income inequality is so high in Serbia: Empirical evidence and a measurement of the key factors. Economic annals. 2016;61(210):23–46. https://doi.org/10.2298/EKA1610023K
22. Mihaescu F., Voinea L. The Impact of the Flat Tax Reform on Inequality: The Case of Romania. Wiiw Balkan Observatory Working Papers No. 81, 2009. 23 p. Available at: https://wiiw.ac.at/the-impact-of-the-flat-tax-reform-on-inequality-the-case-of-romania-dlp-3217.pdf
23. Martorano B. Taxation and inequality in developing countries: Lessons from the recent experience of Latin America. Journal of International Development. 2018;30(2):256–273. https://doi.org/10.1002/jid.3350
About Authors
Stoyan Tanchev – PhD, Associate Professor, Southwest University “Neofit Rilski“, Faculty of Economics, (66 Ivan Mihailov Str., Blagoevgrad 2700 Bulgaria); ORCID: 0000-0002-4399-8427; e-mail: stoyan_tanchev@swu.bg
For citation
Tanchev S. How the proportional income taxation increases inequality in Bulgaria. Journal of Tax Reform. 2021;7(3):244–254. doi.org/10.15826/jtr.2021.7.3.101
Article info
Received October 3, 2021; Revised November 7, 2021; Accepted December 12, 2021
DOI: https://doi.org/10.15826/jtr.2021.7.3.101
Download full text article:
~504 KB, *.pdf
(Uploaded
20.12.2021)
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)