【正文】 Tax Stimulus as Crisis ResponseGeorgi Angelov and Simeon Djankov1January 2020Abstract Many countries are contemplating stimulus packages as a response to the deepening economic crisis. This paper discusses the benefits of tax reform as a crisisresponse measure. It provides a calculation of the benefits of such reform, taking as example the reduction of payroll taxes in Bulgaria. We also estimate the costs in terms of foregone revenue. We find that a reform to reduce the payroll tax by percentage points, from % to %, would result in 130,000 jobs been created or saved, and a % increase in annual GDP growth. Taking the static and dynamic effects of such reform into account, the cost would amount to % of GDP. The reform has three additional benefits. First, it is not subject to corruption: the government is not in a position to distribute largesse as under a fiscal expansion program. Second, it works as a direct stimulus every business and worker in the formal economy gets the benefit. Third, tax reform is quick to implement and can have immediate effects.1 Senior Economist at Open Society Institute, Bulgaria, and Chief Economist, Finance and Private Sector VicePresidency, The World Bank Group. Contacts: and . We thank Caroline Freund for useful ments.IntroductionMany countries are contemplating stimulus packages as a response to the deepening economic crisis. This has invigorated an old debate: should governments focus on fiscal expansion or on tax incentives? Some proposals have both: for example in Germany,2 Latvia, the United Kingdom and the United States. Even in these countries, there is intense discussion on what the right mix between fiscal and tax stimulus is.Fiscal expansion makes sense as a crisisresponse device: it can be narrowly targeted, for example at lowskill jobs. The most obvious fiscal expansion is for infrastructure projects these can create jobs and are highly visible, thus generating a sense that the government is being responsive.But what if the government doesn39。t have money say it is running a budget deficit? Then the ability to spend yourself out of a crisis is limited, unless you borrow internationally. Some countries have already done that. A more problematic case is when the existing government infrastructure projects are considered inefficient and corrupt. Then there is considerably less faith in the ability of government to handle an even bigger burden of projects. Even in the absence of corruption, fiscal stimulus has recently been shown to have less of an effect on output expansion than tax stimulus. Ramey (2020) and Romer and Romer (2020) both look at the historical evidence of fiscal expansions in the United States, looking at events such as military buildup around the Korean and Vietnam wars, the Cold War fiscal expansion after the Soviet Union invaded Afghanistan, and the more recent 9/11 buildup. These policies are pared with tax stimulus package, for example in the second Reagan term and the first Clinton term. The results show that the multiplier effect of fiscal stimulus is (for each dollar spent output increases by $), while the multiplier effect of a tax stimulus is about 3, twice as large.This paper discusses the benefits of tax reform as a crisisresponse measure. It provides a calculation of the benefits of such reform, focused on the reduction of payroll taxes, using the example of Bulgaria. It also estimates the costs in terms of foregone revenue. Bulgaria is chosen for two reasons. First, the data necessary to calculate the effects of the tax reform were readily available as one of the authors has done previous work in this area. Second, Bulgaria is one of twodozen former transition economies which have yet to reform substantially their payroll tax system.We find that a reform to reduce the payroll tax by percentage points,3 from % to %, would result in 130,000 jobs been created or saved, and a % increase in annual GDP growth. Taking the static and dynamic effects of such reform into account, the cost would amount to