Tax Decentralization: Solutions for Bulgaria
Tax Decentralization: Solutions for Bulgaria

Summary/Abstract: The study draws on the theory of optimal taxation and the practice in a number of federal and unitary countries to outline the conceptual framework of the allocation of revenue responsibilities among levels of government. А distinction has been made between decentralized tax policy (the power to set tax bases and rates) and tax administration (collection of taxes). Possible solutions for Bulgaria are drawn and formed on this base. It has been justified that, the strengthening of the tax autonomy of local government is the main objective of the reform in local finances but appropriate taxes are few in number and are with а limited revenue potential. Optimization of the real estate tax has been proposed, including taxation on local incomes from rent as well as local patent tax. The revenue potential of these autonomous local taxes especially in small municipalities is not large, which leads to the necessity of a semi-autonomous parallel local tax on personal incomes, as well as substantial central subsidies i.e. re-allocation of tax revenues across municipalities.

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