IMPROVING FINANCIAL LITERACY AS A PREREQUISITE FOR INCREASING FISCAL CAPACITY: THE BULGARIAN CASE

 

Aleksandrina Aleksandrova¹* and Taner Ismailov²

¹Researcher R2, PhD, Tsenov Academy of Economics Svishtov, BULGARIA,a.alexandrova@uni-svishtov.bg

²Head Assist. Prof., PhD, Tsenov Academy of Economics Svishtov, BULGARIA,t.ismailov@uni-svishtov.bg

*Corresponding Author

 

 

Abstract

Nowadays, the question of financial literacy and its interdependence with different aspects of the social and economic life of the state and citizens is being raised more often than ever. In the scientific field, numerous studies are exploring the relationship between the level of financial literacy of citizens and the financial decisions they make at different stages of their lives, according to their different needs. While in early studies of financial literacy researchers focused primarily on issues of personal finance administration and the level of basic financial knowledge, nowadays financial literacy is seen as a much broader and complex concept. The perceived individual need to make adequate financial decisions creates the need for specific financial knowledge and skills, i.e., financial literacy. Individual’s responsibility for decision-making related to welfare, health and pension insurance, relationships with credit institutions and the state leads to the increasing and pressing need to improve financial literacy and incorporate (study) it in the educational processes.

An essential component in the process of making informed financial decisions and the resulting rights and obligations of citizens is the relationship with the state, i.e., the fiscal. Good knowledge of the structure of public finances, the tax system, the methods for calculating taxes due, etc. have a significant impact on this process. The current study aims to establish the level of financial literacy held by citizens and to test the research hypothesis that high financial literacy is a prerequisite for improving the country's fiscal capacity. For the purposes of the study, the authors have developed a unique survey, structured in 21 questions, conditionally divided into 3 groups. The survey analyses the results obtained by 266 respondents.

The first group (set) of questions aims to establish the level of financial literacy of the respondents and their attitude towards the need to study it. Based on self-assessment, the respondents indicate the level of their financial literacy, and the subsequent questions from the second group aim to test it. In the process of formulating the questions, the author's team follows the structure of OECD’s survey questionnaire, conducted in 2019 on the financial literacy of the population of Southeast Europe. Emphasis is placed on issues related to the knowledge and understanding of the Bulgarian tax system, types of taxes, relations between citizens and the tax administration, etc., i.e. fiscal relations. These types of questions are essential to test the author's hypothesis. The third group of questions is focused on raising citizens' awareness of fiscal relations and assessing opportunities to improve the country's fiscal capacity through the application of various instruments by the tax administration. Improving the collection of taxes, paying the social security payments in full, creating preconditions for leaving the "grey sector" of more workers are fundamental for increasing the fiscal capacity of the state.

The results of the survey show that respondents have a relatively high financial literacy. However, they categorically state (97.7%) that financial literacy needs to be studied in school and support the statement that if financially literate people predominate in a society, then society itself is financially stable (97.7%). Noteworthy, the respondents registered a significantly higher number of wrong answers on the questions focused on fiscal relations rather than on the ones concerning basic financial knowledge. The lack of deep and thorough knowledge of these relations has a direct impact on decision-making on tax planning, payment of taxes, social security contributions, etc., which in turn affects the fiscal capacity. The study assessed potential opportunities to raise awareness and improve financial literacy and, according to the survey’s respondents, the most effective way would be the implementation of innovative digital tools disseminated through video streaming channels and social networks. It can be concluded that the state needs to put more effort into raising citizens' awareness of issues concerning fiscal relations in particular and financial literacy in general. The improvement of financial literacy must be the subject of a purposeful state policy and despite the measures taken by the Bulgarian state in this direction, survey respondents indicated a strong need to concentrate more efforts and resources. Considering the studied attitudes about financial literacy and its importance for increasing fiscal capacity, the author's team confirms its hypothesis.

Keywords: financial literacy, financial education, policy