Original scientific paper

https://doi.org/10.1515/zireb-2016-0009

General Equilibrium Effects of Lower Labor Tax Burden in Croatia

Ozana Nadoveza orcid.org/0000-0002-3651-7795 ; Department of Macroeconomics and Economic Development, University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia.
Tomislav Sekur ; Department of Macroeconomics and Economic Development, University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia.
Marija Beg orcid.org/0000-0002-7897-8055 ; Department of Macroeconomics and Economic Development, University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia.

Abstract

This paper examines the effects of lower labor tax burden in Croatia by using Computable general equilibrium (CGE) model. It is a 5-sector (households, firms, government, investors and foreigners) model and economy is disaggregated on three highly aggregated sectors. One of the major advantages of CGE modeling is the evaluation of the overall effects of policy changes, shocks and reforms in the economy. We do this by lowering taxes on labor and simulating changes of all endogenous variables in the model simultaneously. Lastly, we provide sensitivity analysis results. Our results suggest that it is possible to encourage domestic production by reducing taxes on labor, but the potential effects on unemployment should be revised as to get more accurate estimates.

Keywords

CGE; small open economy; Croatia; taxes on labor; general equilibrium effects

Hrčak ID:

170558

URI

https://hrcak.srce.hr/170558

Publication date:

15.12.2016.

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