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Estimation of Economic Implications of FTT on the Croatian Financial System

Financial transaction tax (FTT) is one of the most controversial and most discussed form of taxation in recent decades. The growing interest for the introduction of new tax regulations of the financial sector was triggered by the outbreak of the financial crisis. The idea of implementation of FTT is to generate significant fiscal revenues, to properly share the cost of the crisis with the financial sector, and to reduce the possibility of a new crisis. Therefore, nine European Union countries have agreed to adopt a unified FTT along with enhanced cooperation which should come into force during 2018. The aim of this paper is to investigate the possibilities of introduction FTT in EU, with special reference to the question of the potential application in the Republic of Croatia. Preliminary analysis suggests the conclusion that the economic and fiscal effects of the introduction of FTT in Croatia could not justify the cost of its implementation. Due to the underdeveloped, illiquid and highly concentrated capital market, introduction of the new tax burden might repel potential investors. Furthermore, tax base for the Croatian capital market is very narrow, because there is no trading in derivatives, which in the initial proposal for introduction of FTT, made up the largest part of the tax base in securities trading.

financial transaction tax, effects, tax revenues, capital market, Croatia

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