Mitja Cok

Distribution of personal income tax changes in Slovenia

Slovenia belongs to a group of EU member states that have reduced their personal income tax burden during the late-2000s financial and economic crisis. The latest changes, introduced in the personal income tax system during the last two years, have primarily reduced the tax burden on low-income taxpayers. However, this was only the last step in a series of personal income tax reforms since 2004 that have reduced the average tax burden on all taxpayers. Using an exclusive database of taxpayers and utilising a general-equilibrium modelling platform, an approach that is unfortunately still rare in Central and Eastern European countries, we assess the consequences of these reforms at both the micro and the macro level. From a macroeconomic point of view, the initial positive consequences of higher private consumption and welfare are declining over time owing to the increased budget deficit and reduced investment.

Distribution of Income and Taxes in Slovenia and Croatia

The purpose of this article is to estimate the redistributive effects of personal income tax (PIT) in Slovenia and Croatia. The decomposition of the Gini coefficient developed by Aronson, Johnson & Lambert reveals only a limited difference between potential and actual redistribution, with this loss being a consequence of the different tax treatment of taxpayers with equal pre-tax income. The results also suggest that Croatia experiences greater income inequality among taxpayers than Slovenia. Another decomposition of inequality measure indicates that some types of income — especially wages — contribute a constant and high proportion to the overall inequality seen in both countries during the period examined.

The Income Tax Reform in Slovenia: Should the Flat Tax Have Prevailed?

In 2007, Slovenia launched a comprehensive tax reform. This paper analyzes several proposed tax reform scenarios, including the flat tax proposal, with a dynamic general equilibrium model of the Slovenian economy, linked to a microsimulation model. We focus on the macroeconomic and welfare aspects of the proposed scenarios, capturing the effects on individual taxpayers and the government budget. The main characteristics of the model are presented along with the results of different reform scenarios, including that which finally passed the parliament and is now part of Slovenias tax system. Our results suggest that choices other than the flat tax system are better suited to the countrys longterm economic development.

Demand for food during economic transition: an AIDS econometric model for Slovenia, 1988–2008

This article investigates the demand for food in Slovenia in 1988–2008 by employing an Almost Ideal Demand System based on Household Budget Survey datasets with own production included. It was established that the demand for food was mostly inelastic, while the responsiveness of households to income and food prices was in general increasing with time. Even though expenditure shares for food did not vary much by income brackets, there were some differences in the elasticities. Taking own production into account, the elasticities of food demand decreased. Overall, Slovenians preserved quite uniform nutritional habits during the transition period; changing to some extent with time but not much in structure by disposable income.

Switching personal income tax and social security contributions between Slovenia and the Federation of Bosnia and Herzegovina

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.

From PAYG to Private Pensions: Income Gaps, Asset Allocation and Diversification Benefits

Current demographic dynamics driven by low fertility and increasing longevity requires adjustments of the traditional frameworks of providing pensions. In this article we highlight three crucial issues policymakers should address by implementing those adjustments. First, fiscal limitations given the current and projected demographic dynamics will dramatically reduce PAYG pensions. Without sufficient savings during the active period, individuals will increasingly end up in poverty. Their savings will not be enough to support their desired consumption in old age. Second, we highlight the impact of the asset allocation decision and the general public’s related lack of awareness on this issue. Therefore, we argue that financial illiteracy about both required savings and about decisions on appropriate asset class play a significant role in determining the well-being of masses in the not-so-distant future. Third, we argue that shift towards private pension away from the PAYG is expected to come with substantial benefits stemming from diversification among conceptually different sources of pension income.

Welfare Loss by the Financially Illiterate and Ignorant: Value of Private Pension Savings and Allocation

Population ageing requires adjustments to the traditional way of providing pensions though pay-as-you-go (PAYG) systems. Governments should prepare sound frameworks for a sustainable long-term shift towards private pensions, either in the form of second or third pillar or even better both of them. Namely, under demographic dynamics being driven by low fertility and increasing longevity both deteriorating the populations dependency ratio, private pension systems are more efficient than traditional PAYG. This paper makes two main points. First one is relatively straightforward. Fiscal limitations under current and projected demographic dynamics will dramatically reduce PAYG pensions. Without saving sufficient amounts during the active period, individuals will be increasingly ending up in poverty. Their savings will not be enough to support their desired old age consumption. Second point, highlights an impact of the asset allocation decision and related lacking awareness of general public regarding this issue. Under the assumption that people are literate enough and they save for their pensions, they might suffer opportunity losses because of the ignorance of appropriate allocation of their savings to various asset classes. Namely, we show in this paper there is a huge difference in outcomes under alternative asset allocation decisions. Those differences represent shortfalls in pension wealth. Therefore, we argue that both illiteracy about required saving on one hand and ignorance about the appropriate asset class decision on the other will play crucial role in determining well-being of masses in the not so distant future if the points we make in this paper are not taken to knowledge.