Lower corporate tax will lead to increase of wages

Standart News, 16th October 2006

After Bulgaria's accession to the EU corporate tax in the country will be reduced from 15% to 10%, the lowest in the Union. This is a significant step that will undoubtedly make Bulgaria's economy more competitive. After the reduction of corporate tax a lot of companies will not even think of avoiding paying it, thus making the gray economy shrink. The beneficial effects of lowering the tax became evident after the first reduction in 2005, when it was set at 15%.

Recent studies of the connection between corporate tax and wages show that a reduction of the tax by one percent leads to a one percent increase of salaries. This effect is even stronger for small and open economies like the Bulgarian. Therefore, it is safe to say that next year the expected growth of wages will be around 30-50%.

The influx of investments will have positive effects on the economy. It is possible that the next year's GDP growth will exceed the previous forecast. However, the real effects will be seen in the long run. The growth of investments will also inevitably lead to lower levels of unemployment.

The reduction of corporate tax is an important step towards creating a positive image of Bulgaria and making the country more attractive for businessmen. Moreover, if the government chooses to pursue economic reforms the beneficial effects would be drastically multiplied. This is not only feasible but also extremely important if we want to overcome the vast living standard gap between Bulgaria and EU.



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