Effect of the change in value added tax on the fiscal stability of Kosovo

Abstract

The main goal of this paper is to analyze the impact of the change in tax rates for VAT for certain categories of goods on the fiscal stability of Kosovo. In Kosovo, VAT has been applied since 2001 and is an indirect tax on consumption that is the main source of revenue for the state budget. The importance of this research paper is its focus on whether the changes made to the VAT rates in September 2015 have had positive or negative effects on some product prices, increasing or decreasing the state budget and the impact on the development of economic indicators expressed through GDP. The methodology of the paper is based on the comparative analysis of the data using both primary and secondary sources. The econometric model includes two variables and their relationships, independent variables, such as VAT and dependent variables, such as GDP. Through the econometric model and linear regression analysis for the period 2013-2016, the hypotheses have been tested with STATA application/software to calculate the impact of changes in the tax rate on the budget, economic growth and economic development. The results of the analysis show that the VAT reduction from 16% to 8% for basic products and the increase in VAT from 16% to 18% on luxury products had a positive impact on budget revenues and GDP growth in Kosovo.