Tax reform proposals: how much do they bring to the public sector budgets?

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JEL classification

• Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
• Social Security and Public Pensions
• State and Local Taxation, Subsidies, and Revenue

Keywords

Czech Republic, government budget, social security, tax reform, value added tax

Abstract

Evaluation of the impacts of tax changes on government revenues and expenditures is indispensable for evidence-based policy making. Czech government discussed several alternative proposals to change the value added tax rates and social security rates during 2010 and 2011. This article estimates the impact of these proposals on the public sector budget deficits. The main contribution of the article is in quantifying a wide range of response channels through which the proposed tax changes affect the government revenues and expenditures. The relationship between the proposed VAT changes and the pension reform is discussed, as is the reallocation of revenue and expenditures within the public sector.