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This paper provides an empirical evaluation of the effects of income taxation on personal savings in Serbia, by taking into account both transmitting channels: the direct impact of capital income tax on the rate-of-return and the indirect impact of labour income tax on disposable income. The estimated elasticity of bank deposits to the rate of return of 0.3 and the estimated elasticity of employment income to a labour tax wedge of –0.38 suggest that income tax function aimed at minimising the efficiency losses should not considerably differentiate the tax burden on labour and capital income. We show that in the case of the introduction of a revenue-neutral income tax, with a single marginal tax rate of 15% and considerably largerlabour income exemption, households’ savings in Serbia would decline by 0.27%. This means that the negative impact of a rise in the capital income tax wedge on savings would prevail over the positive effects of a labour tax wedge cut. The results imply that the overall possibility to boost savings using tax policy is modest

Author

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  • Sasa Randjelovic

    (Estimating the Impact of Income Tax on Personal Savings in Serbia: The Two Channels Approach)

Abstract

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Suggested Citation

  • Sasa Randjelovic, 2016. "This paper provides an empirical evaluation of the effects of income taxation on personal savings in Serbia, by taking into account both transmitting channels: the direct impact of capital income tax ," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 66(2), pages 261-281, June.
    • Handle: RePEc:aka:aoecon:v:66:y:2016:i:2:p:261-281
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    File URL: http://www.akademiai.com/doi/pdf/10.1556/032.2016.66.2.4
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    Keywords

    labour income tax; capital income tax; tax reform; personal savings; Taylor’s model; Serbia;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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