Abstract

In the light of the theory for the optimal taxation and the practice in several federal and unitary states a conceptual frame of the distribution of tax responsibilities between central and local authorities is outlined. A differentiation between the decentralization of taxation policy (the power to determine the tax basis and stakes) and of tax administration (tax collection) is made. On this basis the possible solutions for Bulgaria have been worked out and formulated. The conclusion has been drawn that the strengthening of taxation autonomy of the local authorities is the main goal of the reform in the local finances but the appropriate taxes are few and are with restricted income potential. Optimization of the estate taxes and their complementation with local taxes on rents and local tax on patents is proposed. The income potential of these autonomous local taxes is not that big (especially in small municipalities) which grounds the necessity of a semi-autonomous tax on personal incomes as well as of significant central state aiding, e.g. redistribution of tax income between the municipalities.