This paper analyzes the role of corporate income tax as a regressor of budget deficit dynamics in the Western Balkan countries. Using panel regression analysis, and controlling for macroeconomic variables such as real GDP growth, government expenditures, and inflation, it is determined that an increase in the share of corporate income tax revenues in GDP has a significant positive effect on the fiscal balance. The results indicate that corporate income tax can contribute to fiscal consolidation, but also that there is a risk of revenue volatility, particularly in smaller and transitional economies. The paper concludes that corporate income tax may serve as an effective, yet not self-sufficient, instrument of fiscal policy, and that diversification of tax revenues is necessary to strengthen fiscal stability.
Janković et al. (Thu,) studied this question.