In the study Tax Policy in Serbia – Looking forward we have suggested a revenue-neutral
tax reform that would shift the burden from labor to consumption taxation by reducing
social security contributions and increasing the VAT rate, along with increasing the
progressivity of income taxation. The goal of the proposed reform is to support longterm
economic growth and achieve a limited extent of income redistribution from highearning
workers to low-earning ones. Reducing fiscal burden on wages would stimulate
employment and would increase price-competitiveness of Serbian producers, thus
stimulating economic growth. Overall income redistribution effects of the proposed tax
reform would be progressive in the short and medium-term since VAT increase would
have proportional distributional effects and reducing fiscal burden on wages would
have progressive distributional effects. Workers with lowest wages would benefit the
most from the proposed reform, while workers with highest wages would suffer relative
losses of a limited extent. The living standard of pensioners and other recipients of
social transfers would remain unchanged. Thus, we have concluded that the proposed
tax reform would not cause adverse distributive and macroeconomic effects in the shortterm,
while results from the relevant literature imply positive macroeconomic effects in
the long-term. In the article published in Economic Annals #190, Matkovic and Mijatovic
present results from their empirical analysis which suggest that the proposed tax reform
would cause adverse distributional and macroeconomic effects in the short-term. In this
article we present evidence that challenges the validity of empirical results of Matkovic
and Mijatovic.