After a turbulent year and a total of three general elections, Bulgaria finally has a government. Much like the new power in Germany, it is far from a stable, single-party rule but rather a patchy, colorful coalition of small powers and former enemies.
Progressive taxation is considered to be the most popular measure to reduce income inequality. The aim of the conducted research was to enlighten this discussion by exploring to what extent the progressiveness of PIT is a decisive factor in reducing income inequality.
Previous tax cuts released 1% of GDP worth value to taxpayers’ pockets, followed by ongoing red tape cuts and market deregulations. These moderately intensive reform trends have created a methodologically based contribution for slight increase of economic freedom.
In 2007-2008, a single rate for income and profit tax of 10% (or “flat rate”) was introduced in Bulgaria. It is now apparent that this was only the last stage of a long-lasting tax reform which has been going on without interruption under numerous and fundamentally different governments.
Piketty’s publication has reignited the debate over taxation. Proponents of higher taxation seized the opportunity to increase taxes. Even some countries of Central Eastern Europe, a region that has traditionally prided itself on flat taxes, have faltered.
Recent pre-election debates in Bulgarian media have left many people with the impression that the flat income tax is probably the most important “problem” to be solved by the new government.
The “Flat Tax Era” in Slovakia came to a definite end on 1st January 2013. Corporate tax rate of 23% (highest in the whole Central and East European Countries region by the way) became valid instead of the 19% rate. This was considered to be the last nail in the flat tax coffin.
In line with Laffer’s curve[1], the low flat income tax has led to a steady growth in revenues from income tax, because people responded to the reduced incentives for concealing income.
The flat tax countries are under a growing pressure to revert their flat tax reforms and necessary fiscal consolidation is used as an excuse for such requests.
