Gruevski, Ilija and Gaber, Stevan (2020) Determinants of the Capital Demand in Macedonia: Do Low Tax Rates Really Play an Important Role for Domestic Investment. International Journal of Sciences: Basic and Applied Research (IJSBAR), 49 (1). ISSN 2307-4531
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Abstract
It is very hard to find strong arguments and dispute the distortionary essence of taxes. They built schools and
hospitals but also disrupt the economic efficiency. Ever since the first independence days, the officials in the
Republic of Macedonia have tried to solve this “dilemma” in tax policy, initially balancing from higher taxes
during the 90-ties to “zero” taxes marking the last decade. Generally, in the focus of the biggest tax reform
undertaken in 2006 was the economic efficiency and investment, analogically followed by a period with lower
tax rates. Now that we are standing in front of another challenge, since the government announced the new
course in tax policy in which higher and progressive taxes are the basic attributes, it is time to answer the
question whether the previous “era” of low tax rates have earned the justification of its purpose. Intending to
answer this and many other questions, as well as to explore and specify the mechanism of capital formation in
the domestic economy, the goal of this paper is to identify and evaluate the factors of capital demand in the
Republic of Macedonia, as well as to explore: if the low tax rate policy had any significant role for domestic
investment? Based on the concept of the cost of capital from the methodological frame of METR, developed by
Devereux & Griffith, the tax component was separately examined from the non-tax (economic) component of
the cost of capital, in order to quantify their individual contribution on capital stock. Considering the results from the analysis, a critical assessment is given on the current set of policy measures as
well as recommendations for new investigations in the field of fiscal and tax poli
| Item Type: | Article |
|---|---|
| Subjects: | Social Sciences > Economics and business |
| Divisions: | Faculty of Economics |
| Depositing User: | Stevan Gaber |
| Date Deposited: | 16 Jan 2020 11:38 |
| Last Modified: | 16 Jan 2020 11:38 |
| URI: | https://eprints.ugd.edu.mk/id/eprint/23390 |
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