【正文】 % of GDP. This is onesixth of the projected budget surplus for 2020.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 2 See details here 3 A 5 percentage point reduction for employers and a percentage point reduction for employees.2package, 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 modities fall. In all these cases, payroll taxes are higher than the global average, as documented in the Doing Business The structure of this paper is as follows. Section 1 describes the payroll tax system in Bulgaria and gives some parisons with other developing economies. Section 2 reports estimates of the job creating and economic growth effects of a tax incentive reform. Section 3 details the costs of such reform, and presents some robustness tests. Section 4 concludes.1. What are Payroll Taxes?Payroll taxes cover health and pension benefits, maternity leave, unemployment insurance, and occupational accidents payments. Altogether, as of January 2020 these e to % of the gross salary of an average worker in Bulgaria. Of this amount, 18% goes to pensions (for workers born after 1959, 5% goes to private pension funds), % to sickness and maternity leave, 8% goes to health coverage, 1% to unemployment insurance, % to occupational accidents insurance, and % to wage insurance, in case the business goes bankrupt. The employer pays about 60% of payroll taxes, %, with the employee contributing the rest. The payroll tax has fallen significantly in the last decade, from about 45 percent in 2020 to % as of January 2020. The payroll tax now represents the bulk of what workers pay in taxes. For this reason, in some sectors of the economy there is widespread practice of underreporting wages, so that the payroll tax can be recorded on a lower base. To reduce the incentives for such underreporting, the government has introduced minimum wages in certain sectors, upon which the payroll tax is calculated. There is also a maximum level, currently at 2,000 leva (4 times the average national wage), after which ine is not taxed for the purposes of social contributions.The payroll taxes are used to finance the various parts of the social security system, the main part being the pension system. However, due to the high ration of retired people to working people, the government’s budget provides the bulk of the financing. In particular, only 46% of social security funds came from direct taxation in 2020. This ratio has likely declined in the last two years, as the government has increased pensions and budget subsidies for the social security system. The remaining contributions came as follows: 37% as a central budget transfer。 15% as the state’s contribution。 and 2% indirect state There have already been some reductions in payroll taxes in this decade. In 2020, payroll taxes were cut by 6 percentage points。 in 2020, an additional 3 percentage points。 and in 2020, 4 The Doing Business database presents a breakdown of all taxes that businesses pay. For example, the tax burden for Albanian panies is available at 5 See Mladenova (2020).3perce