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Consumer-Based Taxation at the Business Level: The Croatian Experience


  • Helena Blazic

    (University of Rijeka)

  • Nikša Nikolic

    (University of Split)

  • Mario Pecaric

    (University of Split)


Croatia is the first country in the world to implement consumption-based direct taxation aimed at the individual as well as the business levels. Traditional corporate tax has been replaced by the so-called "interest-adjusted profit tax", which encompasses the corporate as well as the non-corporate sector. This paper analyzes the efficiency of this tax in Croatia with regard to its neutrality as well as its cost-effectiveness. This tax can be regarded as neutral in terms of investment, finance, inflation and organizational form. But the imperfections of financial markets in Croatia still cause distortions between debt and equity capital as well as some distortions between the corporate and non-corporate sectors. The second efficiency aspect is identified as more doubtful, because of the relatively high tax expenditure of protective interest and incentive effects that have not been proven in practice.

Suggested Citation

  • Helena Blazic & Nikša Nikolic & Mario Pecaric, 2003. "Consumer-Based Taxation at the Business Level: The Croatian Experience," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 8(1), pages 57-68, Spring.
  • Handle: RePEc:pep:journl:v:8:y:2003:i:1:p:57-68

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    References listed on IDEAS

    1. Boadway, Robin W & Bruce, Neil & Mintz, Jack M, 1983. "On the Neutrality of Flow-of-Funds Corporate Taxation," Economica, London School of Economics and Political Science, vol. 50(197), pages 49-61, February.
    2. Boyer, Daniel J. & Russell, Susan M., 1995. "Is It Time for a Consumption Tax?," National Tax Journal, National Tax Association, vol. 48(3), pages 363-72, September.
    3. Boyer, Daniel J. & Russell, Susan M., 1995. "Is It Time for a Consumption Tax?," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(3), pages 363-372, September.
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    More about this item


    Taxation; Small Business; Croatia;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe


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