The impact of macroeconomic determinants and tax form on inflation in selected Balkan countries

  • Nada Milenković
  • Branimir Kalaš
  • Vera Mirović
  • Jelena Andrašić

Abstract


Our goal is to reflect how the gross domestic product, unemployment, real interest rate, savings, government expenditures and value-added tax effect on inflation in selected Balkan countries for period 2008-2016. Research examines the impact of macroeconomic determinants on price movements in the general level, measured by the annual rate of inflation. Selected countries are Albania, Bosnia and Herzegovina, Croatia, Montenegro, North Macedonia, Serbia and Slovenia. This paper includes model where inflation is the dependent variable, while gross domestic product, unemployment, real interest rate, saving, government expenditures and value-added tax represent independent variables. Authors used LLC test and VIF test for stationary and multicollinearity, where confirmed that model is adequately designed. Using Hausman test, fixed effect model is chosen, where results have shown that gross domestic product, unemployment and value-added tax have a statistically significant impact on inflation compared to other explanatory variables in the model.

References

Ademola, A., & Badiru, A. (2016). The Impact of Unemployment and Inflation on Economic Growth in Nigeria (1981-2014). International Journal of Business and Economic Sciences Applied Research, 9 (1), 47-55.

Aminu, U., & Manu, D. (2014). The growth effects of unemployed resources and inflation in Nigeria. Journal of Economics and Sustainable Development, 5 (2), 108-122.

Asteriou, D., & Hall, S. (2007). Applied Econometrics, Palgrave Macmillan.

Attari, M.I.J., & Javed, A.Y. (2013). Inflation, Economic Growth and Government Expenditure of Pakistan, Procedia Economics and Finances, 5, 58-67.

Bağci, E., & Ergüven, E. (2015). Relations between Interest Rate, Inflation, Growth and Investment in Turkey, 2002-2015, Journal of Economics and Finance, 7 (5), 43-49.

Baharumshah, A.Z., Slesman, L., & Wohar, M.E. (2016). Inflation, inflation uncertainty and economic growth in emerging and developing countries: Panel data evidence, Economic Systems, 40 (4), pp. 638-657, DOI: http://dx.doi.org/doi:10.1016/j.ecosys.2016.02.009

Bayoumi, T. & Gagnon, J. (1992). Taxation and Inflation: A New Explanation for Current Account Imbalances, International Finance Discussion Papers 420, Board of Governors of the Federal Reserve System.

Benkovskis, K., Fadejeva, L., & Kalnberzina, K. (2012). Price setting behaviour in Latvia: Econometric evidence from CPI micro data. Economic modelling, 29 (6), 2115-2124. DOI:10.1016/j.econmod.2012.07.003

Benkovskis, K., & Fadejeva, L. (2014). The effect of VAT rate on inflation in Latvia: evidence from CPI microdata. Applied Economics, 46 (21), 2520-2533, DOI: 10.1080/00036846.2014.904492

Besley, T.J., & Rosen, H.S. (1999). Sales Taxes and Prices: An Empirical Analysis. National Tax Journal, 52 (2), 157-178.

Brooks, C. (2008). Introductory Econometrics for Finance, Cambridge, University Press.

Caballe, J., & Panades, J. (2004). Inflation, tax evasion, and the distribution of consumption. Journal of Macroeconomics, 26, 567-595, DOI:10.1016/j.jmacro.2003.06.001.

Carare, A., & Danninger, S. (2008). Inflation Smoothing and the Modes Effect of VAT in Germany. International Monetary Fund, IMF Working Paper WP 08/175, Washington.

Cashin, D., & Takashi, U. (2011). The Intertemporal Substitution and Income Effects of a VAT Rate Increase: Evidence from Japan. Discussion papers Research Institute of Economy, Trade and Industry.

Christandl, F., Fetchenhauer, D., & Hoelzl, E. (2011). Price perception and confirmation bias in the context of a VAT increase? Journal of Economic Psychology, 32, 131-141. DOI: 10.1016/j.joep.2010.09.006

Claus, I. (2013). Is the value added tax a useful macroeconomic stabilization instrument? Economic Modelling, 30, 366-374. DOI: 10.1016/j.econmod.2012.08025.

Domac, I., & Elbirt, C. (1998). The Main Determinants of Inflation in Albania, Policy Research Working Paper, No. 1930, Washington, World Bank.

Dotsey, M., & Sarte, P. (2000). Inflation uncertainty and growth in a cash-in-advance economy, Journal of Monetary Economics, 45 (3), 631-655.

Edeme, R.K., & Ifelunini. I. (2015). Savings, Inflation and Economic Growth Linkages: A Re-Examination with Nigera Data, The Journal of Investment Management, 4 (5), 180-185.

Enu, P., Attah-Obeng, P., & Hagan, E. (2013). The relationship between gdp growth rate and inflationary rate in Ghana: An elementary statistical approach. Academic Research International, 4 (5), 310-318.

Ferdous, M., & Shahid, E. (2013). Study on nature of inflation and its relationship with GDP growth rate: a Case Study on Bangladesh. Journal of Economics and Finance, 1 (3), 40-49.

Fountas, S. (2010). Inflation, inflation uncertainty and growth: Are they related? Economic Modelling, 27, 5, 896-899, DOI: 10.1016/j.econmod.2010.06.001

Friedman, M. (1976). Inflation and Unemployment-Nobel Memorial Lecture, The University of Chicago, Illinois, United States.

Gatawa, N.M., Aliero, H.M., & Aishatu, A.M. (2016). Evaluating the impact of value added tax on the economic growth of Nigeria. Journal of Accounting and Taxation, 8 (6), 59-65. DOI: 10.5897/JAT2016.0226

Gelardi, A. (2014). Value Added Tax and Inflation: A Graphical and Statistical Analysis. Asian Journal of Finance & Accounting, 6 (1), 138-158. DOI:10.5296/ajfa.v6i1.5065

Haderi, S., Papapanagos, H., Sanfey, P., & Talka, M. (1999). Inflation and Stabilisation in Albania, Post-Communist Economies, 11 (1), 127-141, DOI: 10.1080/14631379996075

Ikpe, M., & Nteegah, A. (2013). Value Added Tax and price stability in Nigeria: A partial equilibrium analysis. European Journal of Government and Economics, 2 (3), 137-147.

IMF. (2016). World Economic Outlook, Washington, DC: International Monetary Fund

Jha, R., & Dang, T. (2012). Inflation variability and the relationship between inflation and growth, Macroeconomics and Finance in Emerging Market Economies, 5 (1), 1-15, DOI: 10.1080/17520843.2011.608371

Klomp, J., & Haan, J. (2009). Political institutions and economic volatility, European Journal of Political Economy, 25, 311-326, DOI: 10.1016/j.ejpoleco.2009.02.006

KPMG. (2016). Retrieved from https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/indirect-tax-rates-table.html

Levin, A., Lin, C.F., & Chu, C.S.J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108, 1-24, DOI: 10.1016/S0304-4076(01)00098-7.

Malik, G., & Chowdhury, A. (2001). Inflation and Economic Growth: Evidence from Four South Asian Countries. Asian Pacific Development Journal, 8 (1), 123-135.

Mankiw, G., & Reis, R. (2002). Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phiillips Curve, Quarterly Journal of Economics, 117 (4), 1295-1328.

Mehrara, M., & Sujoudi, A. (2015). The Relationship between Money, Government Spending and Inflaton in the Iranian Economy, International Letters of Social and Humanistic Sciences, 51, 89-94.

Miki, B. (2011). The Effect of the VAT Rate Change on Aggregate Consumption and Economic Growth, Columbia University, Center on Japanese Economy and Business, Working Paper Series 297.

Milenković, I., Kalaš, B., & Andrašić, J. (2017). Macroeconomic determinants of economic growth in Serbia, Facta Universitatis Series: Economics and Organization, 14 (2), 105-115.

Mojsoska-Blazevski, N. (2012). Taxation of labour: the effect of labour taxes and costs on employment in Macedonia, Post-Communist Economies, 24 (2), 241-256, DOI: 10.1080/14631377.2012.675158.

Pike, R., Lewis, M., & Turner, D. (2009). Impact of VAT reduction on the consumer price indices. Economic and Labour Market Review, 3 (8), 17-22, DOI:10.1057/elmr.2009.139

Poterba, J.M., & Rotemberg, J.J. (1990). Inflation and Taxation with Optimizing Governments. Journal of Money, Credit and Banking, 22 (1), 1-18.

Rother, P. (2002). Inflation in Albania, Post-Communist Economies, 14 (1), 85-107, DOI: 10.1080/146313701201167/07.

Schall, L. (1984). Taxes, Inflation and Corporate Financial Policy. The Journal of Finance, The American Finance Association, 39 (1), 105-126. DOI:10.1111/j.1540-6261.1984.tb03863.x

Stern, N. (1987). The effects of taxation price control and government contracts in oligopoly and monopolistic competition. Journal of Public Economics, 32, 133-158.

Usman, O., & Adejare, A. (2013). Value added tax and economic growth: The Nigeria experiance (1994-2010), International Journal of Research in Commerce, IT & Management, 3 (3), 85-89.

Yelwa, M., David, O., & Omoniyi, A. (2015). Analysis of the Relationship between Inflation, Unemployment and Economic Growth in Nigeria: 1987-2012. Applied Economics and Finance, 2 (3), 102-109.

Žižmond, E. (1991). Inflation and price stabilisation policy in Yugoslavia, Communist Economies and Economic Transformation, 3 (2), 187-200, DOI: 10.1080/14631379108427678.

Supplementary files
Published
2019/12/03
Section
Original Scientific Paper