engleski

The Tax System as a Generator of Economic Inequality in Croatia

A tax system stands out as the vital instrument in a contemporary economy. Apart from being the medium for fulfillment of fiscal goals, taxes can be used for a wide spectrum of non-fiscal goals, of which the most relevant is influence on income redistribution and the creation of a righteous society. Despite this importance, the system faces a problem which arises from an economic reality and manifests in the fact that, contrary to theory, practice knows not of optimal taxation. The aforementioned generates significant implications and creates practical limitations for achieving economic growth in a modern country and, consequently, society as whole. The aim of this paper is to perceive, detect and alter the characteristics of a tax system which create income and wealth inequality. An analysis had been conducted on the Croatian tax system, which was used to show how structure can provide incentive for creating and maintaining the persistent inequality. The results have shown that the effects of negative tax practices on inequality, in recent history, are still existent and untackled. The organization of tax rates is not working toward the direction of a “positive” distribution of the tax burden. High shares of regressive taxes in Croatian budget are proof of the system’s departure from the equality principle. From the taxation aspect, capital income enjoys a privileged status when being compared to labor income. An obligation to pay lower corporate tax, instead of higher income tax, is being forced by lawmakers. The system suffers from loopholes that can be used for tax evasion and many categories are either not a subject of taxation, or their status is inadequate. Acknowledging theory and using empirical analysis of economic practice, it can be concluded that the Croatian tax system creates and deepens inequality and acts in favor of preserving a wide gap between contradictory societal structures. The latter confirms the necessity of tax system reform, taking into account the aims of curbing inequality and carrying out a righteous distribution of the tax burden with a simultaneous, efficient redistribution of collected assets. In order to achieve stability and create a base for future growth, the fulfillment of goals recognized under the scope of this paper need to be considered in the context of a societal priority.

inequality, regressive taxation, tax system, Croatia

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