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Research papers

Research papers present the research done by members and associates of the Serbian Fiscal Council aimed at supporting academic discussion about major open issues in the area of fiscal policy. Research papers do not represent the official opinion of the Serbian Fiscal Council.


26 January 2024

The 2022 Tax Reform i Montenegro – Facts, Misconceptions and Lessons for Serbia

The elimination of health insurance contributions requires a tangible increase in the rate of value added tax (VAT) to offset the shortfall in budget revenues. Due to the lack of political support for raising the VAT rate, Serbia did not implement such a reform in 2010. Montenegro however took the plunge in 2022 and eliminated health insurance contributions without simultaneously increasing the VAT rate, despite the risk of a widening budget deficit. As it turned out, the strong tax revenue collection in 2023 has largely offset the loss of revenue incurred due to the elimination of healthcare contributions. However, we argue that the strong tax collection is predominantly the result of external factors, primarily the huge inflow of financially sound citizens of Russia and Ukraine.

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March 2, 2018

Going forward: Public sector reforms and locking-in balanced budget in Serbia

From an enormous fiscal deficit in 2014 (6.6% of GDP, i.e. 2.2 bn euros), Serbia practically reached a structurally balanced budget in 2017. However, indisputable achievements aside, the implemented fiscal consolidation has numerous weaknesses (absence of reforms, greater reliance on revenues than on savings). This is why public finances in Serbia, regardless of its excellent, balanced budget, are still not completely well ordered, nor are they growth-promoting; this is where Serbia is seriously lagging behind other comparable Central and Eastern European countries. Looking forward, the most important fiscal policy objective, which would prevent any future risks and allow for faster economic growth, is to have a balanced budget become the “new normal” in the upcoming five to seven years. In addition, the key shortcomings of the current fiscal policy have to be corrected, i.e. necessary public sector reforms have to be implemented and business climate improved (most of all, the rule of law). In the second part of the paper, we analyse, again, the reliability of official data on the unusually high employment growth in Serbia, occurring, allegedly, with low GDP growth, using 2012-2017 data. The length of the available data series allows us to consider the issue with greater reliability. By using comparative and other analyses, we demonstrate that there are still indisputable issues with the official statistical monitoring of employment trends, i.e. that the Labour Force Survey is still unreliable.

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March 6, 2017

Fiscal Consolidation and Growth in Serbia, 2015-2017: Program, Accomplishments and Drivers

Despite the encouraging progress in economic and fiscal trends in 2015 and 2016, Serbia is still far from high economic growth and healthy public finances. In this paper, we provide an in-depth analysis of the drivers of the economic recovery and the fiscal deficit decrease in the previous two years. In both cases, the analyses have shown that the observed improvements rest, to a large extent, on short-term and unplanned factors that are easily exhausted. Economic activity was under a significant impact of external growth drivers – a strong drop in oil and food prices, decreased interest rates and faster recovery of the region and the Eurozone. This is why practically all countries in the region, and not just Serbia, exceeded GDP forecasts by about 1 p.p. in 2015 and 2016. The fiscal deficit was decreased primarily through a surprisingly high public revenue collection, while for the most part, the planned savings were not achieved. Fiscal risks, particularly those pertaining to poor business performances of public and state-owned enterprises, practically remain the same in 2017 as they were in 2014. All this indicates that the improved economic and fiscal trends leave no room for complacency, but should be observed as a rare opportunity to implement structural reforms in a somewhat more favourable environment without a direct pressure of an impending crisis. If this opportunity is missed now, the reforms will have to be implemented in a far less favourable environment and will thus be far more difficult.

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March, 2016

A Case for Introduction of Numerical Fiscal Rules in Serbian Constitution

Boris Begović, School of Law, University of Belgrade and Center for Liberal-Democratic Studies

Tanasije Marinković, School of Law, University of Belgrade

Marko Paunović, Center for Liberal-Democratic Studies

The paper recommends that simple and straightforward numeric fiscal rules should be in introduced in the Constitution, i.e. that constitutional fiscal rules should be introduced in Serbia. Two cumulative numerical fiscal rules are suggested. The primary one is about the ceiling of the sovereign debt and the secondary one is about the ceiling on net new borrowing. Neither of the rules can be violated. The ceiling on the debt level should be predetermined by the Constitution. The ceiling on the new net borrowing should depend on the distance of the sovereign debt to the debt ceiling. An illustrative example with the debt ceiling of 80% is provided. Nonetheless, a specific sovereign debt ceiling as a part of constitutional amendments proposal should be specified by the Fiscal Council, taking into account projections of the fiscal deficit and debt sustainability analysis – the contribution remains silent on the specific constitutional debt ceiling for Serbia.

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Economic Recovery, Employment and Fiscal Consolidation: Lessons from 2015 and Prospects for 2016 and 2017

Slow economic growth, excessive fiscal deficit accompanied with rising public debt as well as high unemployment, represent the main problems Serbian economy is facing. The economic recovery has started in 2015 after the 2014 recession. However, economic growth will still remain sluggish in the following years as resolving structural problems and investment increase (relative to GDP) will take some time to achieve. Lowering the fiscal deficit to 3.7% GDP in 2015 from 6.6% GDP in 2014 represents a good result. Nevertheless, further (and necessary) decrease of the deficit will present a challenge as appropriate measures were not adequately planed, while at the same time the needed reforms were not implemented. Additionally, there is a risk of incurring new fiscal costs as a result of a weak performance of public and state owned enterprises. The ongoing economic recovery demonstrates a negligible adverse impact of fiscal consolidation on economic growth. In the long run, fiscal consolidation has a positive effect on growth as it ensures macroeconomic stability needed for investment increase. Strong employment growth in the previous three years amid economic stagnation has not actually happened, and is a consequence of unreliable evaluation of labor market trends done by SORS. The Government is tasked with considerable challenges in 2016: to resist premature fiscal relaxation and concentrate efforts to improve the investment climate, as it leads to stronger growth and consequently rising employment.

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July, 2014

Incorrect World Bank Pension Data – Consequences for policy making in Eastern Europe and Possible Remedies

Nikola Altiparmakov, Fiscal Council, Republic of Serbia

In this paper we show that over the years World Bank pension studies on Eastern Europe have been based on inconsistent and mostly upwardly biased data on rates of return realized by mandatory private pension funds. Relevant policy makers need to be aware of these data problems in order to properly assess initial pension privatization performance and in developing adequate pension (re-)reform policies. World Bank should consider improving disclosure standards of its publications in order to prevent this kind of errors from reoccurring in the future.

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February, 2014

Fiscal Multipliers in Emerging European Economies

Pavle Petrović, Fiscal Council, Republic of Serbia, Faculty of Economics, University of Belgrade

Milojko Arsić, University of Belgrade – Faculty of Economics

Aleksandra Nojković, University of Belgrade – Faculty of Economics

Filling the evidence gap on the size and variations of fiscal multipliers in developing countries, and contributing to the debate on the fiscal transmission mechanism, we found that the government spending multipliers in emerging Europe are (i) higher than in developing countries and at lower end of those in developed countries; (ii) the fiscal multiplier is large under fixed exchange rate and close to zero under floating and this is related to different monetary policy stance across regimes; (iii) the multiplier substantially increases in the Great Recession relative to pre-crisis expansion; (iv) upon government spending shock private consumption increases under both exchange rate regimes, in downturn and expansion, and hence in the over-all sample, thus mimicking the corresponding pattern of spending multipliers, and hence supporting predictions of traditional and new Keynesian models rather than those of neoclassical ones.

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10th October, 2013

Is fiscal burden on wages in Serbia regressive

Nikola Altiparmakov, Fiscal Council, Republic of Serbia

The two priorities of economic policy in Serbia in the coming period will be a decisive action to bring down the extremely high unemployment rate and systemic personal income tax reform. Thus, there exists a need to thoroughly analyze the magnitude and structure of fiscal burden (wage tax and social contributions) on wages – since valid diagnosis of a problem is a precondition for adopting an appropriate remedy. Positive economic analysis is especially important when disscusing optimal tax treatment of workers' wages, since political and ideological preconceptions often get mixed with economic reality in this case. This article presents statistical data and economic analysis that challange some professional views that have characterized fiscal burden on wages in Serbia as regressive. Fiscal burden on wages in the period 2001 to 2006 can be best described as proportional, and slightly progressive in the period 2007 to date. There exist valid socio-economic arguments in support of more progressive wage taxation in the coming period. However, attempts to increase progressivity by introducing multiple-rate global personal income tax system – would clearly be counterproductive. Optimal approach to increasing progressivity is to maintain the existing single-rate flat-tax system and to significantly inrease the tax-exempt threshold, with possible upward adjustment to the existing tax rate as well.

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Enhancing intra-generational equity and sustainability of the Serbian pension system

Nikola Altiparmakov, Fiscal Council, Republic of Serbia

The existing structure of the Serbian pension system prevents the establishment of a firm and adequate financial correspondence between pension contributions and pension benefits – since the benefit formula completely ignores the expected duration of the retirement period. Thus, the introduction of actuarial adjustment factors represents the reform priority in the coming period, so that pension benefits are appropriately reduced (or increased) depending on the expected number of years during which the beneficiary would be receiving the pension entitlement. Furthermore, the unjustifiably high difference of five years between the male and female retirement age should be reduced or completely eliminated in the coming period, as Serbia is trailing European efforts at equalizing the retirement age for man and woman.

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Juny 2012

Equity Aspects of VAT in Serbia: Current System and Possible Reforms

Milojko Arsić, University of Belgrade – Faculty of Economics
Nikola Altiparmakov, Fiscal Council, Republic of Serbia

Studies of VAT incidence in developed European economies reveal a regressive distribution in any particular year, but mildly progressive lifetime incidence. Micro-simulation analysis of Serbian expenditure survey data yields similar conclusions. However it is important to clearly recognize two distinctive features of emerging European economies when analyzing the VAT incidence. Firstly, we show that significant presence of own-source small farming production in many emerging European countries, including Serbia, presents an additional progressivity-enhancing buffer compared to VAT incidence in developed economies. Secondly, the high level of shadow economy and evasion of direct income taxes in many emerging European countries suggests that household expenditures are a more meaningful indicator of the living standard and ability to pay taxes than the registered income. Overall, we conclude that common beliefs of regressive VAT taxation, often encountered in the general public, are vastly overstated and poorly founded in economic reality of emerging European country such as Serbia.

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