Naslov
Macroeconomic effects of exogenous tax changes in a small open economy: narrative evidence from Croatia

Autori
Deskar-Škrbić, Milan ; Grdović Gnip, Ana ; Šimović, Hrvoje

Izvornik
Post-Communist Economies (1463-1377) 33 (2021), 6; 681-709

Vrsta, podvrsta i kategorija rada
Radovi u časopisima, članak, znanstveni

Ključne riječi
Income tax ; fiscal multiplier ; narrative shocks ; GDP growth ; Croatia

Sažetak
Following the Romer and Romer narrative approach (RR), this paper investigates the effects of tax changes (personal income tax and value added tax in particular) on economic activity in Croatia. We use the narrative approach to identify exogenous tax shocks and construct a unique time series of these shocks for the 2004–2019 period. However, as Croatia is a small open economy, we adjust the original RR modelling approach by taking into account the relevance of external (demand) shocks. Our results indicate that positive tax shocks lead to a fall in private consumption and output in the Keynesian manner. We show that, compared to direct taxes, indirect taxes exercise a stronger effect on macroeconomic aggregates, but the effect of direct taxes is statistically significant throughout the whole time horizon and does not fade out. As the main contributions of this paper to the existing literature, we highlight the following: firstly, this paper sets forth the first estimates of the macroeconomic effects of tax changes based on the narrative approach in the case of a developing economy ; secondly, this study extends the original RR approach by including the effects of external shocks, making this approach more suitable for the analysis of fiscal policy in small open economies.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

Napomena
This work has been supported by the Croatian
Science Foundation under project number IP-2016-
06-4609.

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