Political Economy of Fiscal Equalization: The Case of Croatia

Abstract

Due to ineffectiveness in mitigating fiscal inequalities, Croatian fiscal equalization system has recently been reformed. Before that, criteria for application of fiscal equalization instruments were based on a status of local government units in areas of special national concern and hill and mountainous areas. The aim of this paper is to examine the relationship between the use of equalization instruments and political structure of local government units in 2010. The research revealed a statistically significant relationship between the political alignment of local and central government and the preferential status at areas of special national concern and the distribution of grants through the income tax return.