The distributional impact of fiscal policy in Croatia

Commissioned by: The World Bank
Project duration: October 5, 2016 – June 30, 2017  
Project manager: Ivica Rubil, PhD

Brief outline: 
The main objective of the project was to estimate the distributional impact of the whole tax-benefit system in Croatia for the year 2014. By the distributional impact, we meant the impact of taxes and transfers on inequality in the distribution of material living standard and poverty. As the whole system of taxes and benefits consists of a number of different taxes and benefits, the objective was to include as many of those as possible, in order to get as complete picture of the distributinal impact of fiscal policy as possible. Besides estimating the distributional impact of the fiscal system as a whole, the objective was to estimate the impacts of each particular tax and benefit. In addition to direct taxes (personal income tax, social security contributions) and benefits (pensions, social assistance, unemployment benefit, child benefit etc.), the distibutional impact of indirect taxes (value added tax, excise taxes) was estimated as well. The analysis was not limited exclusively to pecuniary benefits, but also to in-kind benefits, primarily to those stemming from the public expenditures for education and health care. Finally, in addition to estimating the distributional impact for 2014, certain simulations of particular reforms were conducted, with priority given to reforms that had recently been frequenty discussed. 

It was expected that the analysis of the distributional impact of fiscal policy in Croatia, as well as possible reforms, would yield findings useful for both the general public and policy makers in designing more effective and cost-efficient instruments of fiscal policy aimed at more equitable distribution of the tax burden and benefits of public expenditures. 

The activities within the project included: the construction of a micro-simulation model based on tax-benefit rules and individual-level data from a nationally representative household survey and administrative data; estimation of various indicators of the distributional impact of taxes and benefits; and simulation of possible reforms to the fiscal system. 

Methodology: The methodology used in this project fully followed the guidelines of the Commitment to Equity ( approach.