NAŠE GOSPODARSTVO / 
OUR ECONOMY

Analysis of Personal Income Taxation Determinants in Croatia in Long Run: Evidence from Cointegration Analysis

Irena Palić, Ksenija Dumičić, Barbara Grofelnik

Abstract


Personal income taxation remains an ongoing issue in Croatia. It is used as an
important instrument of income redistribution. Moreover, it directly affects purchasing
power of the working population. Numerous changes have been made
in this type of taxation since the establishment of Croatian tax system. The aim
of this paper is to analyse possible determinants of personal income taxation in
Croatia. After offering brief insight into public finance theory regarding personal
income taxation, the structure of personal income taxation in Croatia is explained.
The empirical analysis of the determinants of personal income taxation in Croatia
is conducted using cointegration analysis. Economic conditions, average monthly
wage, and number of taxpayers are used as determinants of personal income tax
used in this research. The cointegration analysis is conducted using monthly data
from January 2008 to February 2016. The results of the research show a statistically
significant negative impact of economic conditions and statistically significant
positive impact of average monthly wage and number of taxpayers on personal
income taxation in long run, what is in line with economic and public finance
theory.


Keywords


personal income taxation determinants, economic conditions, wages, number of taxpayers, johansen cointegration approach, Croatia

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