Many countries are contemplating stimulus packages as a response to the deepening economic crisis. This has invigorated an old debate: should governments focus on fiscal expansion or on tax incentives? Some proposals have both: for example in Germany , the United Kingdom and the United States. Even in these countries, there is intense discussion on what the right mix between fiscal and tax stimulus is.
Fiscal expansion makes sense as a crisis-response device: it can be narrowly targeted, for example at low-skill jobs. The most obvious fiscal expansion is for infrastructure projects - these can create jobs and are highly visible, thus generating a sense that the government is being responsive.
But what if the government doesn't本文来自优.文-论^文·网原文请找腾讯3249.114 . Some countries have already done that. A more problematic case is when the existing government infrastructure projects are considered inefficient and corrupt. Then there is considerably less faith in the ability of government to handle an even bigger burden of projects.
This paper discusses the benefits of tax reform as a crisis-response measure. It provides a calculation of the benefits of such reform, focused on the reduction of payroll taxes, using the example of Bulgaria. It also estimates the costs in terms of foregone revenue. Bulgaria is chosen for two reasons. First, the data necessary to calculate the effects of the tax reform were readily available as one of the authors has done previous work in this area. Second, Bulgaria is one of two-dozen former transition economies which have yet to reform substantially their payroll tax system.
We find that a reform to reduce the payroll tax by 7.5 percentage points, from 31.3% to 23.8%, would result in 130,000 jobs been created or saved, and a 0.5% increase in annual GDP growth. Taking the static and dynamic effects of such reform into account, the cost would amount to 0.63% of GDP. This is one-sixth of the projected budget surplus for 2009.
The reform would encourage employers to keep more workers during the crisis (thus working as an employment policy). It would also put more money in the hands of consumers, thus boosting the economy overall. Such a reform has three additional benefits: it is not subject to corruption: the government is not in a position to distribute largesse. The second benefit is that it works as a direct stimulus - every business and worker in the formal economy gets the benefit. Finally, it is quick to implement and can have immediate effects. This is in contrast to a fiscal stimulus package, which takes time to implement. Some of the needed jobs may take months and even years to materialize.
This reform has implications for other countries too. Candidates include Albania, Belarus, Kazakhstan, Azerbaijan, Slovakia, and most other East European economies which have gone through a period of rapid economic growth and now face the prospect of a painful year or two of falling demand. It also applies to many Latin American and Asian countries, which see the demand for their exports dwindle, or the prices of their main commodities fall. In all these cases, payroll taxes are higher than the global average, as documented in the Doing Business database. 2453