Original scientific paper
The restructuring of the fiscal equalization system in Croatia
Marko Primorac
orcid.org/0000-0003-1629-3170
; Faculty of Economics and Business Zagreb, University of Zagreb, 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.
Keywords
Local government units; fiscal inequalities; fiscal equalization; Gini coefficient; Lorenz curve; Croatia
Hrčak ID:
131532
URI
Publication date:
22.12.2014.
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