Effect of the change in value added tax on the fiscal stability of Kosovo

Abstract

The main goal of this paper is to analyse the effect of the change in tax rates for VAT for certain categories of goods on the fiscal stability of Kosovo. In Kosovo, VAT has been applied since 2001 and is an indirect tax on consumption that is the principal source of revenue to the state budget. The importance of this research paper is its focus on whether the changes made to the VAT rates in September 2015 have had positive or negative effects on some product prices, increasing or decreasing the state budget and the impact on the development of economic indicators expressed through GDP. The methodology of the paper is based on the comparative analysis of the data using both primary and secondary sources. The econometric model includes two variables and their relationships, independent variables, such as VAT, and dependent variables, like GDP. Through the econometric model and linear regression analysis for the period 2013-2016, the hypotheses have been tested with STATA application/software to calculate the impact of changes in the tax rate for VAT on the budget, economic growth and economic development. The results of the analysis show that the VAT reduction from 16% to 8% for basic products and the increase in VAT from 16% to 18% on luxury products had a positive effect on budget revenues and growth of GDP of Kosovo.

The Effect of Tax Structure in Economic Growth

“…The tax structure based on selective taxation such as consumption, personal income tax, and property tax are more supportive of economic growth (Stoilova, 2017). The reduction of tax rate on tax in consumtion for basic products and an increase in tax rate on luxury products has a positive effect on the growth of GDP (Asllani and Statovci, 2018;Gasteratos et al, 2016). The corporate income taxes have the most negative impact on GDP per capita, while real estate taxes and especially reuse tax on real estate has a more positive effect on growth, as well as taxes in consumption and taxes on personal income (Arnold, 2008).…”

Advanced empirical research based on structural equation modeling (SEM) regarding the impact of tax revenue on GDP dynamics at EU-28 level

“…The tax structure based on selective taxation, such as consumption, personal income tax and property tax, further support economic growth (Stoilova, 2016). Reducing the consumption taxation rate on commodities and increasing the taxation rate on luxury goods have a positive effect on GDP growth (Asllani and Statovci, 2018). Corporate income taxes have the greatest impact on GDP per capita, while real estate taxes and in particular the tax on the right of reuse on real estate have a higher positive effect on growth, as well as consumption taxes and personal income taxes (Arnold, 2008).…”

Impact of raising tax rates in GDP growth: The case of Nepal

“…Ferede and Dahlby (2012) and Nechaev and Antipina (2016) also concluded with the overall negative impact of tax effort ratio on the GDP growth rate. However, Asllani and Statovci (2018) and Gasteratos et al (2016) treated the impact differently to basic consumption products and luxury products with the conclusion that the reduction of the tax rate on the consumption of basic products and an increase in the tax rate on luxury products has a positive effect on the growth of GDP.…”