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The Impact of Introduction of the Financial Transaction Tax in Croatia

Financial sector was the trigger of the recent crisis due to harmful effects of excessive risk- taking. At the same time, its high profitability, low taxation and state support resulted in high moral hazard of financial institutions and different national approaches for financial sector taxation. Therefore, nine European Union countries have agreed to adopt a unified FTT along with enhanced cooperation which should come into force during 2018. The mMain benefits 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. Adverse effects primary include the declining effectiveness of pricing mechanism. FTT is a policy tool that can raise a substantial amount of revenue and reduce the size of financial trading in relation to the economy’s level of productive activity. The aim of this paper is to investigate the possibilities of introduction of FTT in the European Union, 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 discourage 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 made up the largest part of the tax base in securities trading

financial transaction tax, public revenues, financial crises, Croatia

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