Achievements and unfinished agenda of the fiscal equalization system in Croatia

Marko Primorac (), Jorge Martínez-Vázquez () and Pedro Arizti ()
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Marko Primorac: CESifo Research Network, Munich, GermanyUniversity of Zagreb, Faculty of Economics & Business, Zagreb, Croatia
Jorge Martínez-Vázquez: International Center for Public Policy (Georgia State University), Atlanta, GA 3030Governance and Economics Research Network (GEN), Campus Universitario As Lagoas s/n, Ourense, Spain Georgia State University, Atlanta, Georgia, USA
Pedro Arizti: The World Bank, Washington, DC, USA
Authors registered in the RePEc Author Service: Jorge Martinez-Vazquez ()

Public Sector Economics, 2022, vol. 46, issue 4, 533-567

Abstract: Revenue sharing arrangements and the fiscal equalization system in Croatia have long been perceived as inadequate and ineffective. The reform of personal income tax sharing implemented in 2018 was accompanied by a new fiscal capacity equalization system. To date the effects of these reforms have not been empirically analyzed. In addition, the impact of the omission of differences in expenditure needs in the new formula has not been adequately analyzed either. This paper aims to fill those gaps by analyzing the existing disparities in fiscal capacity and expenditure needs across subnational governments in Croatia, testing the effectiveness of the current fiscal equalization mechanisms. Using Gini coefficients and other inequality measures we confirm that the new fiscal equalization does reduce disparities in per capita fiscal capacity. However, its equalizing effectiveness regarding expenditure needs arising from decentralized functional responsibilities remains overall rather weak.

Keywords: equalization transfers; fiscal capacity; expenditure needs; intergovernmental fiscal relations; Croatia (search for similar items in EconPapers)
JEL-codes: D63 H73 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ipf:psejou:v:46:y:2022:i:4:p:533-567

DOI: 10.3326/pse.46.4.5

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