Advanced Search
MyIDEAS: Login

Personal Income Tax Reform in Lithuania: Macroeconomic and Welfare Implications

Contents:

Author Info

  • Sigitas Karpavicius

    (University of New South Wales)

  • Igor Vetlov

    ()
    (Bank of Lithuania)

Abstract

In this paper, the economic impact of the 2006–2008 personal income tax (PIT) reform in Lithuania is analyzed applying model-based simulations. We find that the undertaken PIT reform is unsustainable as it leads to permanent government budget deficits and ever increasing public debt. This result holds even allowing for endogenous reduction in tax evasion. After introducing permanent compensatory fiscal measures ensuring long-term sustainability of the PIT reduction, we demonstrate that the lower PIT produces higher output and lower prices in the long run. Higher domestic spending is supported by higher employment and after-tax wages. Moreover, following a reduction in the marginal production costs, producer prices fall enhancing economy’s international competitiveness and boosting domestic exports. Pre-announcement of the tax reform implies early macroeconomic reaction, and thus in most cases smoother adjustment of the economy to the tax change.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.lb.lt/wp2008_no_2
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by Bank of Lithuania in its series Bank of Lithuania Working Paper Series with number 2.

as in new window
Length: 35 pages
Date of creation: 01 Dec 2008
Date of revision:
Handle: RePEc:lie:wpaper:2

Contact details of provider:
Postal: Bank of Lithuania Gedimino pr. 6, LT-01103 Vilnius, Lithuania
Phone: 22 40 08
Fax: 22 15 01
Email:
Web page: http://www.lbank.lt/
More information through EDIRC

Related research

Keywords: fiscal policy; taxation; tax evasion; dynamic general equilibrium model;

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sigitas Karpavicius, 2009. "The Effects of Fiscal Instruments on the Economy of Lithuania," Bank of Lithuania Working Paper Series 4, Bank of Lithuania.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:lie:wpaper:2. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rasa Pusinskaite).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.