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Fiscal Decentralization in Croatia (English)

The problems in Croatia’s fiscal decentralization system have long been recognized. The fragmented territorial-administrative structure, fiscal decentralization efforts with insufficient fiscal autonomy, inconsistent public service standards, unbalanced sources of revenue, and doubts about the introduction of real estate taxes are just some of the concerns. However, there is often no consensus on the possible ways to address them. Compounding the problem is the fact that the recent and still ongoing tax reform, due to its tax relief element, has created the need to compensate subnational governments for the losses of revenues. The COVID-19 pandemic has increased the significance of these issues as the lockdown measures have had a strong negative impact on the existing revenue sources, such as personal income taxes (PITs), of many local and regional government units (LRGUs). At the same time, it may be that the current crisis has created the preconditions and opportunity needed for the government to finally implement reforms in support of fiscal decentralization and more effective financing of subnational governments, reforms that have long been postponed due to political reasons and a lack of popular support. These reforms include addressing the fragmentation of local governments, providing a clearer and more appropriate assignment of functional responsibilities, improving the fiscal equalization system by including the fiscal expenditure needs component, and introducing a working property tax. All of these ideas have long been debated, but there are many reasons to believe that the time is right for at least some of them to be implemented. This report provides a comprehensive overview of the major challenges and options for reform in several critical areas of Croatia’s fiscal decentralization system, including: (i) the vertical structure of government, (ii) expenditure responsibilities, (iii) taxation and revenue autonomy, (iv) intergovernmental transfers, (v) borrowing and debt, and (vi) asset management.

Details

  • Author

    Primorac,Marko, Martínez-Vázquez,Jorge, Arizti,Pedro

  • Document Date

    2021/05/01

  • Document Type

    Report

  • Report Number

    166109

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    Croatia,

  • Region

    Europe and Central Asia,

  • Disclosure Date

    2022/02/09

  • Disclosure Status

    Disclosed

  • Doc Name

    Fiscal Decentralization in Croatia

  • Keywords

    quality of public service; central tax administration; Housing and Communal Services; distribution of tax revenues; subnational government fiscal; system of expenditure assignment; collection of tax revenue; access to capital market; average per capita income; state-owned enterprise; real estate transfer tax; decentralization of expenditure responsibility; social and economic development; real estate property; Municipalities; local public service; own source revenue; fiscal equalization system; public service standard; intergovernmental fiscal relation; inventory of asset; technical assistance program; central government tax; fiscal decentralization; expenditure need equalization; personal income tax; loss of revenue; central government budget; public service delivery; source of revenue; central government control; total tax burden; intergovernmental fiscal framework; million people; central government guarantee; introduction of bankruptcy; Public Financial Management; local government debt; intergovernmental transfer system; assignment of function; legislation and regulation; local public good; public service provider; local government financing; poor asset management; Public Services; asset management plan; real estate valuation; decentralization of tax; local government entity; capital of public; real estate market; Public Administration Reform; new media; growth and development; external affairs; balanced regional development; hard budget constraint; regional development program; subnational government finance; pool of fund; learning by doing; adjustments to revenue; affairs of state; Performance-Based Grant; quality and quantity; revenue sharing system; central government action; local administrative body; real estate tax; decline in revenue; value added tax; state administration body; areas of health; public service provision; real estate management; regional development policy; classification of assets; development of infrastructure; law and regulation; lack of transparency; local government system; public health service; distribution of expenditure; ratio of revenues; distribution of revenue; corporate income tax; right of citizens; decentralization of power; policy reform options; human resource management; vertical fiscal imbalance; provision of service; intergovernmental fiscal transfer; administrative capacity; local unit; revenue autonomy; equalization grant; fiscal capacities; policy option; Capital Investments; Property tax; government units; capital grant; international trends; revenue assignment; financial standard; fiscal rule; intermediate level; legislative framework; borrowing limit; hierarchical model; joint service; representative body; policy strategy; local self government; financial planning; Tax Reform; financial asset; financing system; government association; preferential treatment; medium-term period; financial intermediaries; local election; central coordinating; allocation scheme; functional expenditure; city mayor; purpose of grant; fiscal gap; equalization transfer; block grant; public capital; social entity; best practice; borrowing procedures; double dividend; utility enterprise; transparent rule; revenue capacity; fiscal data; municipal capacity; property valuation; demographic composition; commercial bank; local capacity; horizontal cooperation; fiscal responsibility; decentralization system; capital transfer; fiscal cadaster; land register; property right; appraisal method; administration procedure; financial reporting; effective information; exchange process; lower costs; subnational tax; expenditure account; green tax; revenue bond; public debt; crowding out; performance analysis; population size; grant program; local development; fiscal autonomy; tax relief; popular support; government fragmentation; tax power; expenditure pattern; local autonomy; voluntary association; institutional stability; tax rate; capacities in support; investment planning; incentive instrument; policy priority

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Citation

Primorac,Marko Martínez-Vázquez,Jorge Arizti,Pedro

Fiscal Decentralization in Croatia (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/582501644400447803/Fiscal-Decentralization-in-Croatia