The Tax Base in Transition: The Case of Bulgaria, World Bank Policy Research Working Paper Series No. 1267 (March 1994), The World Bank.

Meeting government revenue needs without inhibiting private sector development is a key challenge of tax policy during the transition from the socialist system. The paper explores issues in the design of tax bases and tax structures in the transition and argues that transition economies would need to adopt a lower and simpler tax structure than the ones prevailing in developed Western market economies.tax reform, tax policy, tax bases, tax structure, transition, Bulgaria

The tax base in transition : the case of Bulgaria

The transition from socialism characteristically reduces existing tax revenues at the same time that it increases the need for government spending. An increasing need for revenue combined with an eroding tax base creates a transition-related fiscal gap and a challenge for tax policy. The solution, say the authors, is not to lay a heavier tax burden on new private firms. The issue is how to meet revenue needs without inhibiting private sector development. Large-scale tax evasion in the private sector - the de facto outcome in Bulgaria and in many other transitional economies - may be a good incentive for development of private enterprise, but it is illegal and inequitable to wage-earners and salaried workers. The chief means of increasing tax revenue are to: (1) reduce tax rates to decrease the benefit of evasion; (2) improve tax administration (to increase tax coverage and better dectect evasion); and (3) increase penalties for evasion. These three measures effectively decrease the benefits and increase the cost of tax evasion to economic agents. It takes time to improve tax administration, however. Given administrative limitations, what should the tax structure be? The authors contend that an administratively feasible system designed to encourage development of the private sector during the transition should: (i) be simple, not complex or oversophisticated; (ii) be administratively implementable with current resources; (iii) impose a low tax burden on all economic agents; (iv) rely on broad tax bases with minimum exemptions; (v) begin the long-term improvement of tax administration; and (vi) limit the severity of tax penalties in the transition from an authoritarian to a democratic regime. In theory, reducing the cost of compliance and increasing the expected cost of noncompliance should reduce tax evasion and increase tax revenue. In practice, small businesses and self-employed citizens tend to evade taxes, providing an effective zero tax base. The government has little to lose from reducing taxes on the self-employed but, to be equitable, it should reduce taxes for everyone. As a general rule, say the authors, economies in transition should impose lower tax burdens than are imposed in mature western market economies. It may also reduce the perception of"exploitation"by giving the impression of a more modest government consistent with the dynamic private sector led economy.Public Sector Economics&Finance,Environmental Economics&Policies,Banks&Banking Reform,National Governance,Municipal Financial Management

Economic Freedom and Religion: An Empirical Investigation

There has been much study of the consequences of economic freedom but, outside of the role of political institutions, there has been little study of the determinants of economic freedom. We investigate whether religion affects economic freedom. Our cross-sectional data set includes 137 countries averaged over the period 2001-2010. Simple correlations show that Protestantism is associated with economic freedom, Islam is not, with Catholicism in between. The Protestant ethic requires economic freedom. Our empirical estimates, which include religiosity, political institutions, and other explanatory variables, confirm that Protestantism is most conducive to economic freedom

Protection, Lobbying, and Market Structure

We analyze a model of lobbying by oligopolists who allocate resources between lobbying and internal cost-reducing activities. We ask the following questions: (i) if firms differ with respect to comparative advantage in lobbying, what is the equilibrium allocation of resources between lobbying and cost-reducing activities? (ii) can the possibility of lobbying reverse the profitability ranking among firms? (iii) under what condition is the conventional wisdom (that highly concentrated industries tend to obtain more protection) valid? On analyse un modèle de lobbying par des entrepreneurs qui allouent leur temps entre les activités de supervision. On donne des réponses aux questions suivantes: (i) quelles sont les allocations de ressources en équilibre? Le lobbying pourrait-il renverser l'ordre de rentabilité parmi les firmes? (iii) y a-t-il une corrélation entre le degré de concentration d'une industrie et la protection qu'elle obtient du gouvernement?Lobbying, oligopoly, protection, quota, Lobbying, oligopole, protection, quota

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