The Distributional Impact of Taxes and Social Spending in Bulgaria with an Application to Green Fiscal Policies

This paper uses methods developed by the Commitment to Equity Institute and data from the European Union Statistics on Income and Living Conditions Survey as well as the Household Budget Survey to assess the impact of the fiscal system on poverty and inequality in Bulgaria. This paper presents the first detailed distributional analysis of the fiscal system in Bulgaria including an analysis of the contribution of the individual components of the system. Overall, the author find that the fiscal system in Bulgaria contributes to inequality reduction. The authors find that the fiscal system is poverty reducing when using the lower USD 5.50 2011 revised PPP poverty line, and poverty increasing when using the higher EU at-risk-of-poverty poverty line. The difference in results is due to different incidence of taxation along the income distribution. Th authors find that most of the redistributive and poverty-reducing impacts are attributable to contributory pensions, though this is not likely to be sustainable in the context of a rapidly aging population and a dwindling contributory base. Direct taxes and transfers are relatively ineffective in reducing inequality and have one of the lowest redistributive impacts in the EU. As an application of the CEQ framework, the author consider the poverty and inequality impacts of increasing carbon taxation and removing fossil fuel subsidies in line with Bulgaria's decarbonization goals. The authors find that these measures lead to an increase in poverty but have negligible impacts on inequality. The authors find that recycling revenues through targeted lump-sum transfers has the greatest mitigating impact on poverty and leads to declines over baseline inequality