Original scientific paper

The reduced VAT rate for small business in Croatia

Helena Blažić orcid.org/0000-0003-4602-3665 ; Faculty of Economics, University of Rijeka, Rijeka, Croatia
Mira Dimitrić orcid.org/0000-0001-6941-5392 ; Faculty of Economics, University of Rijeka, Rijeka, Croatia

Abstract

This paper assesses the potential effects of introduction of the reduced VAT rate for small business, based on the EU VAT legislation development. The analysis includes effects on prices, sales, shadow economy and employment. It starts with the assumption of no substantial effect. Survey for Croatia is done by small business owners’ interviews and encompasses descriptive and inferential statistics based on parametric tests. The EU expected existence of a link between VAT reduction, price reduction, sales increase and positive effects on employment (as well as decline in the shadow economy) is proved even in this research. However, the pass-through to prices is very moderate as well as other effects. The reduced VAT rate could have some positive results for the restaurants and bars only. There exists also some possibility for construction of housing and construction services related to housing as well as some other labour intensive services.

Keywords

Public finance; small business; reduced VAT rates; efficiency; Croatia

Hrčak ID:

38394

URI

https://hrcak.srce.hr/38394

Publication date:

29.6.2009.

Article data in other languages: croatian

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