Do the Effective Tax Incentives Reduce Tax Revenues? Investigating the Paradox of Corporate Income Tax in Serbia

Jadranka N. Đurović Todorović, Marina S. Đorđević, Milica B. Ristić Cakić


The aim of this paper is to examine the impact of tax incentives as determinants of economic development on revenues from corporate income tax in Serbia. The study uses data from secondary resources of the Ministry of Finance for the period 2007–2018 by employing regression and factor analysis. The research includes 10 tax incentives that were used in Serbia in the analyzed period. The methodology of empirical verification involves the implementation of correlation analysis, regression analysis and factor analysis. We opted for the application of Principal Component Analysis (PCA) because this method extracts the important data in order to present a set of new variables called main components. The model obtained in this way formed the determined components of tax incentives as independent variables. The model considers tax incentives grouped into four components. The results of empirical research indicate that there is a positive impact of certain tax incentives on revenues from corporate income tax and proved the paradox of tax collection initiated by tax incentives. The model proved that tax incentives explaining the first component had a positive effect on revenues from corporate income tax. Namely, the incentives for investments, incentives exempting the taxpayer from paying corporate income tax for work training, professional rehabilitation and employment of disabled persons, as well as a reduction based on the elimination of double taxation have a positive effect on revenues from corporate income tax. The positive impact of tax incentives can be explained by their effectiveness. The results show that tax incentives policy must be defined in detail for the purpose of achieving the economic and social goals. 

For citation

Đurović Todorović J.N., Đorđević M.S., Ristić Cakić M.B. Do the Effective Tax Incentives Reduce Tax Revenues? Investigating the Paradox of Corporate Income Tax in Serbia. Journal of Tax Reform. 2022;8(2):108–126.

Article info

Received June 14, 2022; Revised July 15, 2022; Accepted August 4, 2022


corporate income tax, tax incentives, tax revenues, economic development, corporate income tax reform


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