The long-run impact of personal income taxation on economic development: Evidence from Croatia

Open access


Since the endogenous growth model appeared in the economic theory, taxation has been considered as one of the key determinants of the economic growth. In the public finance theory, taxation is considered to have a negative impact on economic growth, which is explained by implications of tax revenues distortions on the economic activity. This assumption has been investigated by many empirical studies. The aim of this paper is to analyse the impact of personal income taxation on economic conditions in Croatia in the long-run. After providing a brief insight into the economic and the public finance theory regarding taxation and economic growth, previous relevant research is presented. The empirical analysis of the impact of personal income taxation on economic conditions in Croatia is conducted using the Johansen cointegration approach. The existence of cointegration is examined and the error correction model is estimated using monthly data from January 2000 to March 2016. The results of the research show that personal income taxation in Croatia has a significant negative impact on the economic growth in the long-run, which is in line with the economic theory and relevant empirical research.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • 1. Alinaghi N. (2015). Taxes and Economic Growth in OECD Countries: A Meta-Regression Analysis. NZAE (New Zealand Association of Economics) conference 2015 Wellington New Zealand.

  • 2. Arnold J. (2008). Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries. Economics Department Working Papers No. 643. Available at [26 June 2017].

  • 3. Bahovec V. Erjavec N. (2009). Uvod u ekonometrijsku analizu. Element Zagreb.

  • 4. Barro R.J. (1990). Government spending in a simple model of endogeneous growth. Journal of Political Economy Vol. 98 No. 5 pp. 103-125.

  • 5. Bleaney M. Gemmell N. Kneller R. (2001). Testing the endogenous growth model: public expenditure taxation and growth over the long run. Canadian Journal of Economics Vol. 34 No. 1 pp. 36-57.

  • 6. Bonu N. S. Pedro Motau P. (2009). The impact of income tax rates (ITR) on the economic development of Botswana. Journal of Accounting and Taxation Vol.1 No. 1 pp. 8-22.

  • 7. Burgess R. (1993). Public Revenue without Taxation. Shepheard-Walwyn Ltd London.

  • 8. Chang F. (2017). Local Tax Scale and Its Economic Effects in China. Modern Economy Vol. 8 pp. 445-457

  • 9. Čibarić I. (2010). Analiza odrednica privatne štednje u Republici Hrvatskoj primjenom modela vektorske autoregresije. Postgraduate specialist paper. Faculty of Economics and Business University of Zagreb.

  • 10. Dackehag M. Hansson A. (2012). Taxation of income and economic growth: An empirical analysis of 25 rich OECD countries. Available at [15 October 2016].

  • 11. Dumičić K. Čibarić I. (2010). The Analysis of Household Savings in Republic of Croatia Using Cointegration Approach. The American Business Review Cambridge Vol. 15 No. 1 pp. 220-226.

  • 12. Dumičić K. Čibarić I. Horvat N. (2010). The Analysis of Monetary Transmission Mechanism in Croatia Using Cointegration Approach. Croatian Operational Research Review Vol. 1 No. 1 pp. 210-220.

  • 13. Enders W. (2015). Applied Econometric Time Series. John Wiley & Sons London.

  • 14. Engen E. Skinner J. (1996). Taxation and Economic Growth. National Tax Journal Vol. 49 No. 4 pp. 617-642.

  • 15. Gale W. G. Samwick A. A. (2016). Effects of Income Tax Changes on Economic Growth. The Brookings Institution. Available at [15 October 2016].

  • 16. Hodrick R. Prescott E. C. (1980). Postwar U.S. Business Cycles: An Empirical Investigation. Carnegie Mellon University discussion paper No. 451.

  • 17. Hodrick R. Prescott E. C. (1997). Postwar U.S. Business Cycles: An Empirical Investigation. Journal of Money Credit and Banking Vol. 29 No.1 pp. 1-16.

  • 18. Jaimovich N. Rebelo S. (2015). Non-linear Effects of Taxation on Growth. Kellogg School of Management Northwestern University. Available at [26 June 2017].

  • 19. Johansen S. Juselius K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and statistics Vol. 52 No. 2 pp. 169-210.

  • 20. Karras G. Furceri D. (2009). “Taxes and Growth in Europe”. South Eastern Europe Journal of Economics Vol.2 pp.181-204. Available at [26 June 2017].

  • 21. Karras. G. (1999) Taxes and Growth: Testing the Neoclassical and Endogenous Growth Models. Contemporary Economic Policy 17 177-195. Available at [26 June 2017].

  • 22. Keho Y. (2013). The structure of taxes and economic growth in Cote d’Ivoire: An econometric investigation. Journal of Research in Economics and International Finance Vol. 2(3) pp. 39-48. Available at [26 June 2017].

  • 23. Kesner-Škreb M. (1999). Porezna politika i gospodarski rast. Privredna kretanja i ekonomska politika Vol. 9 No. 73 pp. 62-121.

  • 24. King R. G. Rebelo S. (1990). Public Policy and Economic Growth: Developing Neoclassical Implications. Rochester: University of Rochester.

  • 25. Kotlan I. Machova Z. (2013). The Impact of the Tax Burden on the Living Standard in OECD Countries. Ekonomický časopis Vol. 61 No. 9 pp. 951-962.

  • 26. Maček R. (2014). The Impact of Taxation on Economic Growth: Case Study of OECD Countries. Review of economic perspectives Vol. 14 No. 4 pp. 309-328.

  • 27. Ministry of Finance (2016). Vremenske serije podataka Državni proračun Ministarstvo financija Republike Hrvatske. Available at [1 September 2016].

  • 28. Myles G. D. (2000). Taxation and Economic Growth. Fiscal Studies Vol. 21 No. 1 pp. 141-168.

  • 29. Ojong C. M. Anthony O. Akripo O. F. (2016). The Impact of Tax Revenue on Economic Growth: Evidence from Nigeria. IOSR Journal of Economics and Finance Vol. 7 No. 1 pp. 32-38.

  • 30. Palić I. (2015). Ekonometrijska analiza i kalibracija dinamičkih stohastičkih modela opće ravnoteže gospodarstva Hrvatske. PhD dissertation. Faculty of Economics and Business University of Zagreb.

  • 31. Palić I. Dumičić K. Barbić D. (2016). The estimation of money demand elasticity: case of Croatia. International Journal of Research in Business Vol. 4 No. 9 pp. 89-98.

  • 32. Rosen H. S. (1998). Public Finance. Irwin Homewood Ill.

  • 33. Sastry S. S. (2012). Introductory Methods of Numerical Analysis. PHI Learning New Delhi.

  • 34. Slemrod J. (2003). The Truth about Taxes and Economic Growth. Challenge Vol. 46 No. 1 pp. 5-14.

  • 35. Tajumah W. (2014). Tax Revenue and Economic Growth in Ghana: A Cointegration Approach. Available at [26 June 2017].

  • 36. Taufik A. H. Imbarine B. (2012). The Impact and Consequences of Tax Revenues’ Components on Economic Indicators: Evidence from Panel Groups Data. Available at [15 October 2016].

  • 37. U. S. Census Bureau (2016). X-13ARIMA-SEATS Reference Manual Time Series Research Statistical Research Division. Available at [19 October 2016].

Journal information
All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 842 454 3
PDF Downloads 365 225 5