Tax Autonomy of Local Government: A Comparison of Croatia and OECD Countries

Abstract

The paper measures the total (two-tier) local tax autonomy (cities/municipalities
and counties combined) in Croatia applying the OECD methodology in terms
of the definition and scope of taxes and their classification according to taxing
power and autonomy. First, it follows the methodology of previous studies for
Croatia, which considered only nominal taxes. This results in a relatively small
share of autonomous taxes in local tax revenues. The change from a formal
recording of taxes to an effective one based on the OECD definition of taxes
leads to more than a doubling of local autonomous taxes. However, compared to
other OECD unitary countries (countries with only the local level), Croatia still
lags significantly behind the OECD average and also behind the average of EU
member countries that are also OECD member countries. The weighting of different
categories, despite the risk of arbitrariness, and the resulting tax autonomy
index show an additional improvement of the Croatian situation. Further calculation
of the tax autonomy index and, in particular, the composite indicator
of tax autonomy (share of autonomous local taxes in total general government
taxes), as well as the composite tax autonomy index (local tax autonomy index
divided by total general government taxes), lead to a further improvement of the
Croatian position. Although the country is still below the OECD average, it has
improved to an almost median position. The indicators suggest that the taxing
powers of local governments need to be further strengthened.