Tax Sharing and Intergovernmental Fiscal Transfers in Bulgaria and Czechia

This paper aims to explore and compare the systems of intergovernmental fiscal transfers and tax sharing in Bulgaria and Czechia, as well as their evolution. It examines the factors influencing various types of municipal revenues and their distribution among individual municipalities, and proposes a model for a tax revenue-sharing system in Bulgaria inspired by the Czech formula-based tax-sharing algorithm. The research applies Ordinary Least Squares (OLS) regression to identify determinants of municipal revenues and Gini coefficients to assess revenue inequality. Key explanatory variables include population, area, urbanisation, and unemployment. Additionally, simulations estimate the effects of implementing Czechia’s tax-sharing formula in Bulgaria. Results confirm population size as the dominant factor shaping all revenue types in both countries. The simulations suggest that adopting a formula-based tax-sharing mechanism in Bulgaria could reduce fiscal disparities and enhance expenditure decentralisation.