Abstract
This article examines policy switching between Slovenia and the Federation of Bosnia and Herzegovina (FBH). The idea behind it is that national microsimulation models can be used to apply Slovenian parameters to the FBH data, as established by the Personal Income Tax (PIT) Act and Social Security Contributions (SSC) Act. Accordingly, we introduce FBH parameters to Slovenian data. Along these lines, we investigate the effects on public finance systems with respect to revenues from PIT and SSC, average after-tax income, tax progressivity, income inequality, and the redistributive effect in each of these two countries, using the other country’s PIT and SSC solutions. This is the first fiscal comparison of Slovenia and the FBH, as well as the first policy switching analysis of the two countries.
Highlights
Slovenia and Bosnia and Herzegovina have been experiencing several tax reforms over the past two decades
This article examined the impact of policy switching between Slovenia and the Federation of Bosnia and Herzegovina (FBH) on revenue collection, after-tax income, inequality measures, progressivity measures, and the redistributive effect
The FBH would experience a converse process; the total taxes would increase by 8.11%, reducing the after-tax income by 5.16%
Summary
Slovenia and Bosnia and Herzegovina have been experiencing several tax reforms over the past two decades. In the FBH, the SSC Act that was introduced in the 1990s is still in effect, currently with the employer 10.5% rate and employee 31% rate This article relates these two countries through ‘policy switching.’. The idea behind it is to apply Slovenian PIT and SSC parameters to FBH data. We investigate the effects on tax progressivity and income inequality through the Gini coefficient, concentration indices of after-tax income and taxes, the Kakwani index, and decomposition of the redistributive effect This is the first policy switching exercise in public finance between Slovenia and Bosnia and Herzegovina.
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