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Research on redistributive effects of Croatian fiscal system

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warner
22 diapositives · 340 Views · Aug 07, 2014

This research examines the redistributive effects of the Croatian fiscal system, primarily focusing on the distribution of fiscal burdens and benefits. While the distribution of personal income tax (PIT) has been explored, the value-added tax (VAT) and overall influences on income inequality have not been fully addressed. This study highlights the impact of government fiscal instruments on inequality, emphasizing public pensions as a key factor. The findings suggest that Croatia’s system is relatively redistributive, yet calls for further investigation into the efficiency and equity of various tax and benefit mechanisms.

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  1. Research on redistributive effects of Croatian fiscal system Ivica Urban Institute of Public Finance

  2. Distribution of fiscal burdens and benefits in Croatia • Only partially investigated • Distribution of PIT analyzed in several studies • Distribution of VAT • Influence of social benefits on income inequality

  3. Distribution of fiscal burdens and benefits in Croatia • No attempt to provide combined incidence calculation for several tax and benefit instruments

  4. Income inequality in Croatia • World Bank (2006), Nestić (2005), World Bank (2001) • Disposable income inequality in Croatia is low in comparison with other transition countries • What is the influence of government on distribution of income?

  5. Theses for research • Government redistributive policies are one of the prime determinants of disposable income inequality in Croatia • The largest part of income redistribution process is achieved through the public pension system • Fiscal instruments are highly efficient in reducing inequality (well-targeted and introducing low horizontal inequalities)

  6. “Inequality” studies • Kesselman & Cheung (2004): Tax Incidence, Progressivity, and Inequality in Canada • Computable general equilibrium (CGE) • Fiscal incidence (FINC) • and Inequality (INEQ) studies: analyze single tax forms or groups of taxes and/or benefits

  7. “Inequality” studies • Assumptions (deficiencies, restrictions, problems with...) a) inclusion only of direct taxes and benefits in analysis; exclusion of indirect taxes and in-kind government benefits, b) income earners cannot shift the burden of personal taxes, c) existence of taxes and transfers does not affect market incomes, d) annual instead of lifetime perspective

  8. “Inequality” studies: examples • Kim & Lambert (2007): Redistributive Effect of US Taxes and Public Transfers, 1994-2004 • Immervoll et al. (2005): Household incomes and redistribution in the European Union: quantifying the equalising properties of taxes and benefits

  9. Methodology RE = Redistributive effect Lambert (1986, 2001): V = Vertical effect R = Reranking effect Immervoll et al. (2005): = Kakwani progressivity index of taxes = Kakwani regressivity index of benefits DN = Concentration coefficient of post-fiscal income GX = Gini coefficient of pre-fiscal income GN = Gini coefficient of post-fiscal income

  10. Alternative approaches Methods: 1. Lambert (1986) – Decomposition of vertical effect 2. Immervoll et al. (2005) – “Exclusion” of one-by-one instrument from the reference base Reference income base: 1. Pre-TB income 2. Post-TB income

  11. Equivalent incomes

  12. Defining groups of households EM = employed or self-employed, UN = unemployed or inactive; EL = the elder

  13. Distribution of income, taxes and benefits in 2005 (1)

  14. Distribution of income, taxes and benefits in 2005 (2)

  15. Entropy index decomposition

  16. Distribution of income, taxes and benefits in 2005 (3)

  17. Inequality measures

  18. Decomposition of redistributive effect

  19. Preliminary conclusions • Croatian system of direct taxes, pensions and social benefits seems to be highly redistributive • Public pensions are the most contributive instrument, followed by SSC and PIT • Unfinished research, still lot to do

  20. Fiscal system coverage • PIT and SSC = 38% of total general government revenue • Public pensions and cash benefits = 34% of total expenditures (2006) • Huge part of fiscal system is still outside the coverage of this analysis

  21. Further issues (1) • How does Croatian fiscal system stand in comparison with EU countries in terms of achieving equity goals? • Are the individual instruments and the system as a whole enough redistributive? • Are there some instruments that are not equitable? Should taxes be more progressive? • Can the overall redistributive effect be significantly altered through increase (decrease) of the PIT rate schedule progressivity?

  22. Further issues (2) • How can total welfare be increased keeping the amount of expenditures and taxes unchanged? • What equity role have public pensions now, and how it should be in future? • How can other fiscal instruments be included into current model to obtain more comprehensive picture of fiscal incidence?