Shall High Income Earners Pay More Taxes in TheKyrgyz Republic?

44457

In 2009 a flat tax reform was implemented in the Kyrgyz Republic following similar reforms in neighbor countries and efficiency reasons. This paper discusses problems in the Kyrgyz personal income taxation arising after the reform, when progressive income tax rates were changed to a flat rate. Taking into account a high income inequality in the country and a budget deficit problem, a flat tax schedule seems to be not optimal for the country. This paper investigates possible framework of the personal income taxation and tax rates for the Kyrgyz Republic, which will maximize tax revenues and reduce income inequality. The top optimal tax rates for high income earners in the Kyrgyz Republic are calculated following methodology by Saez (2001) and Brewer, Saez, and Shephard (2008). The results suggest that a personal income tax rate is quite low in the republic and can be increased for high income earners without large negative incentive effects on work effort. Progressive tax schedule should be considered in the republic by tax policymakers in the middle term perspective.

499

Optimal taxation , income tax rate , budget policy , flat income taxation

Ege Academic Review (EAR)

507

Ege Academic Review (EAR)