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The restructuring of the fiscal equalization system in Croatia

Author

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  • Marko Primorac

    (University of Zagreb, Faculty of Economics and Business Zagreb, Croatia)

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.

Suggested Citation

  • Marko Primorac, 2014. "The restructuring of the fiscal equalization system in Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 32(2), pages 213-232.
    • Handle: RePEc:rfe:zbefri:v:32:y:2014:i:2:p:213-232
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    References listed on IDEAS

    as
    1. Alexander Kalb, 2010. "The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities," Economic Analysis and Policy, Elsevier, vol. 40(1), pages 21-63, March.
    2. Julius Margolis, 1970. "The Analysis of Public Output," NBER Books, National Bureau of Economic Research, Inc, number marg70-1.
    3. Guy Gilbert & Alain Guengant, 2003. "The equalizing performance of central government grants to local authorities : the case of France," Post-Print halshs-00103147, HAL.
    4. Viktor Trasberg, 2004. "Fiscal federalism in the Baltic countries: from Soviets to EU," ERSA conference papers ersa04p153, European Regional Science Association.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    local government units; fiscal inequalities; fiscal equalization; Gini coefficient; Lorenz curve; Croatia;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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