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Visiting Speaker: Dr Saša Ranđelović

Social Welfare Effects of Progressive Income Taxation in the Balkans: Evidence from Serbia

 
Date 

Tuesday, 29 November 2016

Time 6:00 - 7:30pm
Venue

Cañada Blanch Room, (COW 1.11),  1st floor, Cowdray House, LSE, London WC2A 2AE 

Speaker

Dr Saša Ranđelović, Assistant Professor of Public Finance, Faculty of Economics, University of Belgrade

Chair Dr Vassilis Monastiriotis, LSEE Research on SEE, London School of Economics

Saša Ranđelović is Assistant Professor of Public Finance at the University of Belgrade – Faculty of Economics, while from 2015 he is also the vice dean in charge of finance and international relations at the same school. He was awarded the PhD degree in economics, at the University of Belgrade – Faculty of Economics in 2012. In 2016 he has spent six months at the Free University of Berlin, for the post-doctorate research project. His research interests are public finance and fiscal policy, with particular focus on taxation, inequality, microsimulation and shadow economy topics in the Central and Eastern Europe. Saša Ranđelović was engaged on many research and advisory projects, on the above mentioned topics, for the Ministry of Finance and Fiscal Council of Serbia, World Bank, USAID, GIZ and other international organizations.

About the seminar:

During the recent economic crisis, labour market inactivity, unemployment and work informality in Serbia rose substantially, triggering salient redistribution of market income and making the income inequality in Serbia the single largest in Europe, while income tax progressivity remained very low. Although in many South-eastern European countries inequality and inactivity are high, while redistributive effects of tax policy are weak, the empirical literature on the social welfare effects of progressive taxation in that region is limited. Therefore, this paper is aimed at providing the contribution to empirical literature on optimal taxation in the European transition economies. At the same time (to the best of our knowledge), this is the first paper to compare the social welfare effects of progressive taxation before and after the crisis, thus contributing to discussion on the consequences of the 2008 global economic crisis for the optimal income tax design.

Using the microsimulation and utility function estimation techniques, on 2007 and 2012 household survey data for Serbia, we estimate the social welfare effects of shift from flat to progressive taxation, before and after the crisis, assuming that the social welfare is a function of the individual utility, which is dependent on income, leisure and the vector of characteristics. Our results show that shift from flat to progressive tax in 2007 and 2012 would trigger activation of 54 and 66 thousand individuals respectively, implying rise in disposable income by 2.6% and 3.3%. Since the most of the effects would occur at the lower part of income distribution, Gini coefficient would decline by 1.8 pp in 2007 and 2.1 pp in 2012. Consequently, rise in the social welfare, by 0.56% in 2007 and 0.38% in 2012 would be posted, the results being robust both under utilitarian and egalitarian specification of the social welfare function. This means that the positive welfare effects coming from income redistribution and rise in the total disposable income (due to strong labour activation at lower deciles) would prevail over the negative welfare effects coming from increase in working hours. Social welfare effects would be slightly larger in 2007 than in 2012, due to the stronger labour supply response (higher labour supply elasticity), and the stronger disutility of work found in the later year.

PHOTOS

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A complete listing of the 2016-17 Visiting Speaker Programme is available here.

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