Sectoral Linkages of Taxes: An Input-Output Analysis of the Croatian Economy

The design of a tax system should take into account that producers in the national economy are strongly interconnected. Increasing the tax burden not only affects the sector the activities of which taxes are directly levied on, but all other economic entities, too, because of sectoral linkages. In this empirical research, the input-output (I-O) analysis was used to analyse sectoral linkages of taxes within the Croatian economy. The results show that the largest ratio of total to direct tax effects induced by unit change of final demand in an open I-O model (type I tax multiplier) is found in sector CPA_A01_Products of agriculture, hunting and related services. The largest ratio of total tax effects to direct tax effects per unit change of final demand in a closed I-O model - (type II tax multiplier) is found in sector CPA_T - Services of households as employers; undifferentiated goods and services produced by households for own use. On the other hand, the lowest indicators of type I and II tax multipliers are found in sector CPA_L68A - Imputed rents of owner-occupied dwellings.