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Tax expenditures and the efficiency of Croatian value added tax


  • Petar Sopek

    (Privredna banka Zagreb, Zagreb, Croatia)


The main aim of this paper is to provide a systematic overview of value added taxation in Croatia along with main changes in relevant legislation and to estimate total amount of tax expenditures. Results show that the proportion of tax expenditures in GDP in Croatia in 2010 amounted to less than 4%, a proportion lower than in any of the EU new member states, as well as almost twice as low as the EU-27 average. It can be concluded that the Croatian value added taxation system is efficient in this way, as was additionally shown by an analysis according to which Croatia in 2010 had better efficiency indicators than all the observed EU member states. The Croatian VAT system is mainly harmonized with EU directives, but abolition of the zero rate is still expected; this will increase government revenue by approximately 0.4-0.8% of GDP, depending on a chosen scenario. It has been suggested that a detailed analysis of the overall value added taxation system should be initiated, with the aim of optimizing cost-benefits. The main focus should be placed on the determination of the optimal VAT registration threshold, the costs and benefits of the introduced reliefs and exemptions in the tax system and the potential effects of the repeal of the zero rate.

Suggested Citation

  • Petar Sopek, 2012. "Tax expenditures and the efficiency of Croatian value added tax," Financial Theory and Practice, Institute of Public Finance, vol. 36(3), pages 269-296.
  • Handle: RePEc:ipf:finteo:v:36:y:2012:i:3:p:269-296

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