Measuring the welfare costs of EU accession - The case of VAT reform in Bulgaria

We analyze possible reforms to the Bulgarian VAT system, evaluating revenue -neutral reallocations of goods to tax bands within the existing 2-rate str ucture. We investigate the sensitivity of the results to behavioural respon se and imperfect tax recovery. We find only a weak case for the use of non- uniform VAT rate structures for redistributional purposes. Selective VAT ex emptions can produce approximate welfare gains equivalent to a general pric e fall of much less than 1 per cent for plausible specifications of social welfare.