The long-run impact of personal income taxation on economic development: Evidence from Croatia

Abstract

Since the endogenous growth model appeared in the economic theory, taxation has been considered as one of the key determinants of the economic growth. In the public finance theory, taxation is considered to have a negative impact on economic growth, which is explained by implications of tax revenues distortions on the economic activity. This assumption has been investigated by many empirical studies. The aim of this paper is to analyse the impact of personal income taxation on economic conditions in Croatia in the long-run. After providing a brief insight into the economic and the public finance theory regarding taxation and economic growth, previous relevant research is presented. The empirical analysis of the impact of personal income taxation on economic conditions in Croatia is conducted using the Johansen cointegration approach. The existence of cointegration is examined and the error correction model is estimated using monthly data from January 2000 to March 2016. The results of the research show that personal income taxation in Croatia has a significant negative impact on the economic growth in the long-run, which is in line with the economic theory and relevant empirical research.

Personal Income Taxation Determinants in Federation of Bosnia and Herzegovina

“…Ever since the formulation of the endogenous model, the impact of taxation on economic growth is interesting both for scientists and economic policymakers. For example, Palić et al (2017b) found that an increase in personal income taxation in Croatia statistically significantly decreases economic growth.…”

“…In order to assess the long-run impact of selected labor market variables on personal income taxation in FB&H, the Johansen's approach to cointegration is used. It is important to note that long-run equilibrium in econometric terms does not refer to market equilibrium, but to the long-run relationship of non-stationary variables (Palić, 2017, Palić et al, 2017b.…”

Dugoročna analiza učinka plaća u javnom sektoru na ekonomsku aktivnost u Hrvatskoj

“…Budu i da se podaci o bruto doma em proizvodu objavljuju tromjese no, a indeksi industrijske proizvodnje mjese no, takva aproksimacija esto je korištena u ekonometrijskim istraživanjima s ciljem o uvanja stupnjeva slobode i pouzdanosti rezultata analize. Pri ispitivanju u inka indirektnog poreza na ekonomsku aktivnost u Hrvatskoj takvu aproksimaciju koriste Pali et al (2017). Pla e u javnom sektoru odre ene su prema NACE statisti koj klasiÞ kaciji gospodarskih aktivnosti u Europskoj zajednici (Eurostat, 2008.).…”

“…) pomo u empirijske analize zaklju uju da direktni porezi, posebno porez na dohodak i doprinosi, imaju dugotrajno negativan i snažan u inak na kretanje BDP-a u Hrvatskoj, dok pozitivne u inke indirektnih poreza treba promatrati s dozom opreza. Tako er, Pali et al (2017. ) empirijski potvr uju kako porez na dohodak u Hrvatskoj ima signiÞ kantan negativan u inak na ekonomski rast u dugom roku.…”

Estimating the Impact of Taxes on the Economic Growth in the United States

“…The development of endogenous growth model has included the effect of taxes on economic growth which depends on the structure of tax system (Palić et al 2017). In public finance, dominant opinion is that taxes have a negative effect on economic growth.…”