The restructuring of the fiscal equalization system in Croatia

Marko Primorac ()
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Marko Primorac: University of Zagreb, Faculty of Economics and Business Zagreb, Croatia

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2014, vol. 32, issue 2, 213-232

Abstract: The aim of this paper is to propose a model of fiscal equalization in Croatia. This paper tests the hypothesis of a lack of effectiveness of the existing fiscal equalization model compared to a model that would be based on alleviating the difference in the potential to collect revenue from the personal income tax and surtax. Fiscal inequalities of local government units are determined first under the current equalization system by calculating the Gini coefficients and graphically presented with Lorenz curves. Thereafter, a distribution of equalization grants is simulated based on the new (proposed) model. The effectiveness of the proposed model in alleviating the fiscal inequalities is determined in relation to the effectiveness of the current equalization system. It was found that the model based on equalizing the difference in the capacity to collect revenue from the personal income tax and surtax alleviates inequalities in fiscal capacities of local government units much better than the existing system at the same cost. The main conclusion is that the fiscal equalization in Croatia should urgently be redesigned in order to improve efficiency and fairness, but also the transparency and credibility of the equalization system.

Keywords: local government units; fiscal inequalities; fiscal equalization; Gini coefficient; Lorenz curve; Croatia (search for similar items in EconPapers)
JEL-codes: D63 H77 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:rfe:zbefri:v:32:y:2014:i:2:p:213-232

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