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

Author

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  • Palić Irena

    (Faculty of Economics and Business, University of Zagreb, Croatia)

  • Žmuk Berislav

    (Faculty of Economics and Business, University of Zagreb, Croatia)

  • Grofelnik Barbara

    (Graduate student at Faculty of Economics and Business, University of Zagreb, 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.

Suggested Citation

  • Palić Irena & Žmuk Berislav & Grofelnik Barbara, 2017. "The long-run impact of personal income taxation on economic development: Evidence from Croatia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 3(1), pages 35-44, June.
    • Handle: RePEc:vrs:crebss:v:3:y:2017:i:1:p:35-44:n:3
    DOI: 10.1515/crebss-2017-0003
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    References listed on IDEAS

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    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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    Cited by:

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    2. Palić Irena & Hodžić Sabina & Dumičić Ksenija, 2019. "Personal Income Taxation Determinants in Federation of Bosnia and Herzegovina," Business Systems Research, Sciendo, vol. 10(1), pages 153-163, April.

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    More about this item

    Keywords

    Johansen cointegration approach; economic development; vector error correction model; personal income taxation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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