engleski

Income vs. Consumption-based concept of direct taxation: eternal debate in Croatia

In 2014, Croatia marked 20 years from the first big tax reform, which set up foundations of the current tax system to a great extent. The 1994 tax reform was in the spotlight of numerous debates in Croatian as well as international tax literature. At the time, Croatia was the only country consistently implementing consumption-based taxation i.e. interest- adjusted personal and corporate income tax. Special contribution to the debate was influenced by the Allowance for Corporate Equity, called “protective interest” in Croatia. In the paper, we present the results of a broad expert opinion survey about the Croatian tax system with special emphasis on elements contributing to consumption- versus income-based concept debate. The paper explores determinants of experts’ policy opinions in Croatia related to some personal values regarding redistribution issues and professional (expert) economic views and beliefs on how the tax policy affects the economy. The research focuses on several questions/statements i.e. dichotomous dependent variables for which (non)-taxation presents the main precondition for the existence of consumption or income-based system of direct taxation. From their perspective, robust econometric models are constructed with relevant socio-economic and demographic independent variables. The results imply that there are no consistent and significant expert attitudes toward different concepts of taxation. Accordingly, the results are in line with the existence of the current hybrid system i.e. system with elements of income- and consumption-based system of direct taxation. Regression results indicate that consumption- based elements of direct taxation are influenced by attitudes towards equity, neutrality, and efficiency as well as, to a lesser extent, by some demographic variables (employment sector and education).

consumption-based (interest adjusted) concept; income-based concept; allowance for corporate equity; direct taxation; Croatia

Sveučilište u Rijeci, projekt 13.02.1.2.02, voditelj: prof.dr. Helena Blažić, Ekonomski fakultet Rijeka Hrvatska zaklada za znanost, projekt IP-2013- 11- 8174, voditelj: prof.dr. Helena Blažić, Ekonomski fakultet Rijeka