<abstract xmlns="http://www.w3.org/1999/xhtml"><p><bold>Background:</bold> In recent years’ income inequality has been an economic issue. The primary instrument for redistributing income is personal income tax. However, based on economic theory income inequality concerns indicators such as wages, transfer payments, taxes, social security contributions, and geographical mobility. <bold>Objectives:</bold> The objective of this paper is to examine the impact of certain labor market indicators on personal income taxation in Federation of Bosnia and Herzegovina (FB&amp;H). <bold>Methods/Approach:</bold> Since personal income taxation consists of a very broad definition and for the purpose of this research only, income from dependent (employment) activity is observed. The econometric analysis is conducted using error correction modeling, as well as forecast errors variance decomposition. <bold>Results:</bold> The error correction model is estimated, and the cointegrating equation indicates that monthly wage and number of employees statistically significantly positively affect personal income taxes in FB&amp;H in the long-run. After two years, the selected labor market indicators explain a considerable part of forecasting error variance of personal income tax revenues. <bold>Conclusions:</bold> The implementation of reforms in the labor market and tax policies of the FB&amp;H is suggested. In order to achieve necessary reforms, efficient governance and general stable political environment are required.</p></abstract>

Background: In recent years’ income inequality has been an economic issue. The primary instrument for redistributing income is personal income tax. However, based on economic theory income inequality concerns indicators such as wages, transfer payments, taxes, social security contributions, and geographical mobility. Objectives: The objective of this paper is to examine the impact of certain labor market indicators on personal income taxation in Federation of Bosnia and Herzegovina (FB&H). Methods/Approach: Since personal income taxation consists of a very broad definition and for the purpose of this research only, income from dependent (employment) activity is observed. The econometric analysis is conducted using error correction modeling, as well as forecast errors variance decomposition. Results: The error correction model is estimated, and the cointegrating equation indicates that monthly wage and number of employees statistically significantly positively affect personal income taxes in FB&H in the long-run. After two years, the selected labor market indicators explain a considerable part of forecasting error variance of personal income tax revenues. Conclusions: The implementation of reforms in the labor market and tax policies of the FB&H is suggested. In order to achieve necessary reforms, efficient governance and general stable political environment are required.

Personal Income Taxation Determinants in Federation of Bosnia and Herzegovina

Faculty of Tourism and Hospitality Management

Business Systems Research Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Personal Income Taxation Determinants in Federation of Bosnia and Herzegovina"}

Background: In recent years’ income inequality has been an economic issue. The primary instrument for redistributing income is personal income tax. However,...

Personal Income Taxation Determinants in Federation of Bosnia and Herzegovina

Published Online: May 09, 2019

Page range: 153 - 163

Received: Sep 03, 2018

Accepted: Jan 03, 2019

DOI: https://doi.org/10.2478/bsrj-2019-0011

Keywords
error correction model, Federation of Bosnia and Herzegovina, labor market indicators, personal income taxation

© 2019 Irena Palić et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Personal Income Taxation Determinants in Federation of Bosnia and Herzegovina

Published Online: May 09, 2019

Page range: 153 - 163

Received: Sep 03, 2018

Accepted: Jan 03, 2019

DOI: https://doi.org/10.2478/bsrj-2019-0011

Keywordserror correction model, Federation of Bosnia and Herzegovina, labor market indicators, personal income taxation

© 2019 Irena Palić et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
error correction model, Federation of Bosnia and Herzegovina, labor market indicators, personal income taxation