engleski

The effectiveness of tax measures in time of the crisis in Croatia

This paper investigates tax multipliers in Croatia during bad economic times and analyses fiscal policy actions taken by the Croatian government during the 2009-2012/13 period. In order to do so a STVAR model is employed and historical decomposition is used as the main tool in estimating the welfare effects of taken tax measures during the crisis. Main results show that restrictive fiscal (tax) policy in Croatia negatively affects GDP and its components, especially during periods of slump. The major decrease in the medium term in output occurs after a direct tax shock, when a one kuna increase in direct taxes leads to a decrease of 12.50 kunas in twelve quarters. Moreover, given the estimated multipliers, the fiscal tightening in 2009 planned at 1% GDP (or about 2.1% of total general government revenues) indicatively signal that by 2012 the registered output drop due to the given measures could have been predicted at about 16%. In the same indicative way an increase in the VAT rate that occurred in 2012, could cause a similar (16% GDP) drop in output by 2015 once again (given the fact that in 2012 the economy did not improve comparing to 2009).

fiscal policy; fiscal stimuli; discretionary measures; tax multipliers; regime switch; crisis.

Project: „Tax Policy and Fiscal Consolidation in Croatia [8174]" Croatian Science Foundation.