PERSONAL INCOME TAX AND OUTPUT VOLATILITY: EMPIRICAL EVIDANCE FROM BULGARIA

Resumen

This article studies the influence of personal income tax in Bulgaria under business cycle. With
quarterly data of Eurostat and National Statistical Institute of Bulgaria for the period 1995-2020, the
Hodrick-Prescott filter, correlations and regression model between the output gap and the changes
in the trend shares and the cyclical shares of personal income tax revenue in GDP, in this paper is
compare the cyclical impact of the progressive and the proportional income taxes. Proportional
income tax replaced progressive income tax in 2008. The research examined two periods of personal
income tax revenue. The first period covered March 1995 through December 2007 with 36
observations. The second period covered March 2008 through March 2020 with 49 observations. The
first period examined the progressive income tax. The second period examined the proportional
income tax. The research results show that automatic changes in proportional income tax revenue
are countercyclical in period of deflation and procyclical in period of inflation. The discretionary
changes in proportional income tax revenue are procyclical in period of inflation and deflation.
Automatic changes in progressive income tax revenue are countercyclical in period of inflation and
deflation. The discretionary changes in progressive income tax revenue are countercyclical in period
of deflation and procyclical in period of inflation. It may be inferred that discretion and au