The general theory of twin deficits hypothesis does not consider specific
characteristics of domestic tax systems, i.e. whether the revenue side of the
budget is dominated by indirect or by direct taxes. The main hypothesis of
the paper is that in countries with fiscal systems dominated by indirect
taxes, the deterioration of the current account balance would imply higher
fiscal revenues due to larger imports and consumption. The hypothesis is
based on the characteristics of domestic tax systems of Bulgaria, Croatia,
Poland and Romania in which indirect tax revenues account for the majority of
total budget tax revenues. Results suggest that the co-movements of the
current account and the fiscal balance cannot be explained by the twin
deficit theory in countries with indirect tax-oriented systems. These results
imply that only the structural economic transformation and export orientation
of the economy may reverse the causality direction between two deficits.
ozana nadoveza jelić, margareta gardijan kedžo: efficiency vs effectiveness: an analysis of tertiary education across europe public sector economics 42 (4) 381-414 (2018)
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, fi rms, 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.
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