The effectiveness and efficiency of social and political measures in reducing income inequality in Croatia

The purpose and research objective of this paper is to provide insight into the role and efficiency of the tax system and social security transfers in reducing income inequality in Croatia. Conception of the analysis is based on an explanation of the tax system, pension insurance, and welfare system in Croatia. The paper also compares these systems to similar programs for taxation and wealth transfer in other member-states of the European Union. The paper’s main finding is that the system of social security transfers in Croatia is efficient enough but leaves considerable room for improvement in reducing economic inequality.

This research reaches multiple conclusions. First, by using previous surveys and available data, one can compare the effect of tax and social policies in Croatia. Second, by dividing evaluation of the Croatian government’s efforts between taxation and transfer payments, this research contributes to a better understanding of the effect of each specific policy. Third, the paper’s discussion of optimal policy facilitates a deeper examination of the effect of government actions as an important step toward improvement of public policies affecting economic equality and income distribution. The conclusion of the survey is that market forces alone can never be relied on to produce a fair or equitable society. The state must be committed to the reduction of poverty and inequality. Substantial poverty and inequality reduction could be achieved in Croatia by careful reallocation of expenditures and improvement of coordination among existing social programs. In order to achieve these goals, the state must maintain a transparent and equitable system of social protection that relies on a foundation of universal coverage and non-discrimination. Also there is a need to constantly monitor and survey the implementation of particular programs. In order to arrive at a more precise and objective estimate of the role of given transfers and determine what types of social transfers contribute most to a reduction in poverty and inequality, in future research it will be necessary to study the effectiveness of each transfer program by itself.