Publication: The Distributional Impact of Taxes and Social Spending in Croatia
Loading...
Date
2017-09
ISSN
Published
2017-09
Author(s)
Rubil, Ivica
Editor(s)
Abstract
This paper describes the impact of fiscal policy on inequality and poverty, and examines recent policy changes and whether there is room for an increased role for fiscal policy in improving the well-being of the poor. Taxes and social spending reduced inequality in Croatia; however, once the impacts of indirect taxes are considered, the system is unable to reduce poverty, especially for families with children and retirees. Beginning in the second decile, households are net payers to the treasury, as the share of taxes paid exceeded the cash benefits received for all but the poorest 10 percent of the population. Microsimulations of recent tax changes find that inequality after taxes and transfers is expected to increase slightly in 2017, as most of the benefits of the reform were concentrated at the top of the distribution. Although the impact of lower value-added taxes on electricity and utility bills is expected to be slightly poverty reducing, this effect is small relative to the relief that is needed. A reduction in the standard value-added tax rate from 25 to 24 percent would result in a small decline in poverty and inequality. However, the impact may be much smaller, depending on how this measure would be financed.
Link to Data Set
Citation
“Rubil, Ivica; Inchauste, Gabriela. 2017. The Distributional Impact of Taxes and Social Spending in Croatia. Policy Research Working Paper;No. 8203. © World Bank. http://hdl.handle.net/10986/28448 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Intergenerational Income Mobility around the World(Washington, DC: World Bank, 2025-07-09)This paper introduces a new global database with estimates of intergenerational income mobility for 87 countries, covering 84 percent of the world’s population. This marks a notable expansion of the cross-country evidence base on income mobility, particularly among low- and middle-income countries. The estimates indicate that the negative association between income mobility and inequality (known as the Great Gatsby Curve) continues to hold across this wider range of countries. The database also reveals a positive association between income mobility and national income per capita, suggesting that countries achieve higher levels of intergenerational mobility as they grow richer.Publication The Impact of Trade Promotion Organizations on Exports(Washington, DC: World Bank, 2025-08-13)This paper examines the impact of trade promotion organizations on exports during the COVID-19 pandemic using a World Bank survey. The results suggest that increased trade promotion organization budgets significantly boosted exports during downturns but had no effect during the recovery phase. Interestingly, e-commerce programs adopted by trade promotion organizations negatively affected exports during downturns as they diverted resources away from productive support, especially for sectors not intensive in online trade. These findings suggest that countercyclical trade promotion organizations budgets may enhance trade resilience during similar global shocks.Publication The Future of Poverty(Washington, DC: World Bank, 2025-07-15)Climate change is increasingly acknowledged as a critical issue with far-reaching socioeconomic implications that extend well beyond environmental concerns. Among the most pressing challenges is its impact on global poverty. This paper projects the potential impacts of unmitigated climate change on global poverty rates between 2023 and 2050. Building on a study that provided a detailed analysis of how temperature changes affect economic productivity, this paper integrates those findings with binned data from 217 countries, sourced from the World Bank’s Poverty and Inequality Platform. By simulating poverty rates and the number of poor under two climate change scenarios, the paper uncovers some alarming trends. One of the primary findings is that the number of people living in extreme poverty worldwide could be nearly doubled due to climate change. In all scenarios, Sub-Saharan Africa is projected to bear the brunt, contributing the largest number of poor people, with estimates ranging between 40.5 million and 73.5 million by 2050. Another significant finding is the disproportionate impact of inequality on poverty. Even small increases in inequality can lead to substantial rises in poverty levels. For instance, if every country’s Gini coefficient increases by just 1 percent between 2022 and 2050, an additional 8.8 million people could be pushed below the international poverty line by 2050. In a more extreme scenario, where every country’s Gini coefficient increases by 10 percent between 2022 and 2050, the number of people falling into poverty could rise by an additional 148.8 million relative to the baseline scenario. These findings underscore the urgent need for comprehensive climate policies that not only mitigate environmental impacts but also address socioeconomic vulnerabilities.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Climate Vulnerability and Job Accessibility(Washington, DC: World Bank, 2025-08-11)Many developing cities are facing rapid population growth and extreme climate events. This paper examines the link between job accessibility and climate vulnerability, using data from Antananarivo, Madagascar, which frequently experiences flooding. As in other countries, the analysis finds that men’s commutes are longer than women’s, who tend to walk to work or use public transport. Even after controlling for observables and the potential endogeneity bias associated with commute time, the findings show that climate vulnerability negatively impacts wages, as people avoid commuting long to work due to anticipated potential climate risks. Building climate resilience into urban transport is therefore essential. As predicted by theory, the evidence also shows that the value of commuting is positive, and walking is disadvantageous. Motorized commuting yields higher returns, which could lead to overuse of private cars and taxis, posing decarbonization challenges.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication The Distributional Impact of Taxes and Social Spending in Romania(World Bank, Washington, DC, 2018-08)The combined effect of taxes and social spending in Romania helps to reduce inequality, although less so than in other European Union countries. However, the combination of direct and indirect taxes and transfers leads to an increase in poverty, as direct cash transfers to poor households are not large enough to compensate them for the burden of indirect taxes. This is especially important for rural households and families with children. Moreover, recent reductions in the rates for personal income and value-added taxes are expected to have led to an increase in inequality, as most of the tax relief accrued to the top of the income distribution. Although these changes likely helped to reduce poverty, they were an expensive way to achieve a small decline in the poverty rate. Higher and better targeted social assistance spending could have achieved better distributional results at a much lower fiscal cost. These results call for greater use of simulation tools that could inform policy makers and the public of the fiscal costs and redistributive impacts of proposed reforms.Publication The Distributional Impact of Fiscal Policy in South Africa(World Bank Group, Washington, DC, 2015-02)This paper uses the 2010/11 Income and Expenditure Survey for South Africa to analyze the progressivity of the main tax and social spending programs and quantify their impact on poverty and inequality. The paper also assesses the redistributive effectiveness of fiscal interventions given the resources used. Because it applies the Commitment to Equity methodology, the results for South Africa can be compared with other middle-income countries for which the framework has also been applied. The main results are twofold. First, the burden of taxes -- namely the personal income tax, the value added tax, excises on alcohol and tobacco, and the fuel levy -- falls on the richest in South Africa and social spending results in sizable increases in the incomes of the poor. In other words, for the components examined, the tax and social spending system is overall progressive. Second, for these elements, fiscal policy in South Africa achieves appreciable reductions in income inequality and poverty. Moreover, these reductions are the largest achieved in the emerging market countries that have so far been included in the Commitment to Equity project. Although fiscal policy is equalizing and poverty-reducing, the levels of inequality and poverty that remain still rank among the highest in middle-income countries. Looking ahead, as South Africa grapples with slow economic growth, a high fiscal deficit, and a rising debt burden, addressing the twin challenges of high inequality and poverty will require not only much improved quality of public services, but also higher and more inclusive economic growth.Publication The Distributional Impact of Taxes and Transfers(Washington, DC: World Bank, 2017-08-24)The World Bank has partnered with the Commitment to Equity Institute at Tulane University to implement their diagnostic tool—the Commitment to Equity (CEQ) Assessment—designed to assess how taxation and public expenditures affect income inequality, poverty, and different economic groups. The approach relies on comprehensive fiscal incidence analysis, which measures the contribution of each individual intervention to poverty and inequality reduction as well as the combined impact of taxes and social spending. The CEQ Assessment provide an evidence base upon which alternative reform options can be analyzed. The use of a common methodology makes the results comparable across countries. This volume presents eight country studies that examine the distributional effects of individual programs and policy measures—and the net effect of each country’s mix of policies and programs. These case studies were produced in the context of Bank policy dialogue and have since been used to propose alternative reform options.Publication The Distributional Impact of Taxes and Transfers in Poland(World Bank, Washington, DC, 2016-08)This paper assesses the impact of fiscal policy on the incidence, depth, and severity of poverty, and examines whether there is room for an increased role for fiscal policy in improving the wellbeing of the poor. The results show that the combined effect of taxes and social spending helped substantially to reduce poverty and inequality in Poland in 2014, in line with other European Union countries, with most of the reduction largely being achieved by pensions. However, in cash terms, households beginning in the second decile were net payers to the treasury in 2014, as the share of taxes paid exceeded the cash benefits received for all but the poorest 10 percent of the population. Although the Polish fiscal system in 2014 had the capacity to redistribute, it had a relatively weak capacity to reduce poverty given the resources at its disposal, and this was especially true for families with children. Microsimulations of the introduction of the Family 500+ program in 2016 show the redistributive and poverty reduction impacts of the new program, even after taking into account the potential increase in indirect taxes. Finally, alternative reforms of the tax-free allowance are considered, and estimates of their likely impact on poverty, inequality, and the potential fiscal cost are presented. The simulations show that there are potential efficiency gains from further targeting each of these new initiatives.Publication Social Spending, Distribution, and Equality of Opportunities : Opportunity Incidence Analysis(World Bank, Washington, DC, 2013-06)Existing evidence forms a body of "conventional wisdom" on the redistributive impact of fiscal policies that has been recently questioned by more disaggregated analyses. This paper proposes an additional extension to the traditional benefit incidence analysis to explore further the extent to which the conventional wisdom holds, as well as to provide effective guidance in fiscal decision making. The benefit incidence analysis extension includes linking fiscal policies with the concept of equality of opportunities. The paper describes this approach and showcases the application of the proposed "opportunity incidence analysis" to six pilot countries: Liberia, Cote d Ivoire, Zambia, Tajikistan, Thailand, and Paraguay. Three main contributions stand out: first, opportunity incidence analysis complements traditional benefit incidence analysis by applying its mechanics to a more forward looking concept of equal opportunity. Second, opportunities can be used to target public spending with higher precision. Third, micro-simulations can be used to understand the cost-effectiveness of alternative spending interventions that seek to improve equality of opportunities. All of these results complement the diagnosis produced by traditional incidence analysis and provide useful information to guide specific policy decisions.
Users also downloaded
Showing related downloaded files
Publication World Development Report 2011(World Bank, 2011)The 2011 World development report looks across disciplines and experiences drawn from around the world to offer some ideas and practical recommendations on how to move beyond conflict and fragility and secure development. The key messages are important for all countries-low, middle, and high income-as well as for regional and global institutions: first, institutional legitimacy is the key to stability. When state institutions do not adequately protect citizens, guard against corruption, or provide access to justice; when markets do not provide job opportunities; or when communities have lost social cohesion-the likelihood of violent conflict increases. Second, investing in citizen security, justice, and jobs is essential to reducing violence. But there are major structural gaps in our collective capabilities to support these areas. Third, confronting this challenge effectively means that institutions need to change. International agencies and partners from other countries must adapt procedures so they can respond with agility and speed, a longer-term perspective, and greater staying power. Fourth, need to adopt a layered approach. Some problems can be addressed at the country level, but others need to be addressed at a regional level, such as developing markets that integrate insecure areas and pooling resources for building capacity Fifth, in adopting these approaches, need to be aware that the global landscape is changing. Regional institutions and middle income countries are playing a larger role. This means should pay more attention to south-south and south-north exchanges, and to the recent transition experiences of middle income countries.Publication World Development Report 2018(Washington, DC: World Bank, 2018)Every year, the World Bank's World Development Report takes on a topic of central importance to global development. The 2018 Report, Learning to Realize Education's Promise, is the first ever devoted entirely to education. Now is an excellent time for it: education has long been critical for human welfare, but is even more so in a time of rapid economic change. The Report explores four main themes. First, education's promise: Education is a powerful instrument for eradicating poverty and promoting shared prosperity, but fulfilling its potential requires better policies - both within and outside the education system. Second, the learning crisis: Despite gains in education access, recent learning assessments show that many young people around the world, especially from poor families, are leaving school unequipped with even the most foundational skills they need for life. At the same time, internationally comparable learning assessments show that skills in many middle-income countries lag far behind what those countries aspire to. Third, promising interventions to improve learning: Research from areas such as brain science, pedagogical innovations, or school management have identified interventions that promote learning by ensuring that learners are prepared, that teachers are skilled as well as motivated, and that other inputs support the teacher-learner relationship. Fourth, learning at scale: Achieving learning throughout an education system will require more than just scaling up effective interventions. Change requires overcoming technical and political barriers by deploying salient metrics for mobilizing actors and tracking progress, building coalitions for learning, and being adaptive when implementing programs.Publication World Development Report 2020(Washington, DC: World Bank, 2020)Global value chains (GVCs) powered the surge of international trade after 1990 and now account for almost half of all trade. This shift enabled an unprecedented economic convergence: poor countries grew rapidly and began to catch up with richer countries. Since the 2008 global financial crisis, however, the growth of trade has been sluggish and the expansion of GVCs has stalled. Meanwhile, serious threats have emerged to the model of trade-led growth. New technologies could draw production closer to the consumer and reduce the demand for labor. And conflicts among large countries could lead to a retrenchment or a segmentation of GVCs. This book examines whether there is still a path to development through GVCs and trade. It concludes that technological change is, at this stage, more a boon than a curse. GVCs can continue to boost growth, create better jobs, and reduce poverty provided that developing countries implement deeper reforms to promote GVC participation; industrial countries pursue open, predictable policies; and all countries revive multilateral cooperation.Publication World Development Report 2012(World Bank, 2012)The main message of this year's World development report: gender equality and development is that these patterns of progress and persistence in gender equality matter, both for development outcomes and policy making. They matter because gender equality is a core development objective in its own right. But greater gender equality is also smart economics, enhancing productivity and improving other development outcomes, including prospects for the next generation and for the quality of societal policies and institutions. Economic development is not enough to shrink all gender disparities-corrective policies that focus on persisting gender gaps are essential. This report points to four priority areas for policy going forward. First, reducing gender gaps in human capital-specifically those that address female mortality and education. Second, closing gender gaps in access to economic opportunities, earnings, and productivity. Third, shrinking gender differences in voice and agency within society. Fourth, limiting the reproduction of gender inequality across generations. These are all areas where higher incomes by themselves do little to reduce gender gaps, but focused policies can have a real impact. Gender equality is at the heart of development. It's the right development objective, and it's smart economic policy. The World development report 2012 can help both countries and international partners think through and integrate a focus on gender equality into development policy making and programming.Publication World Development Report 2021(Washington, DC: World Bank, 2021-03-24)Today’s unprecedented growth of data and their ubiquity in our lives are signs that the data revolution is transforming the world. And yet much of the value of data remains untapped. Data collected for one purpose have the potential to generate economic and social value in applications far beyond those originally anticipated. But many barriers stand in the way, ranging from misaligned incentives and incompatible data systems to a fundamental lack of trust. World Development Report 2021: Data for Better Lives explores the tremendous potential of the changing data landscape to improve the lives of poor people, while also acknowledging its potential to open back doors that can harm individuals, businesses, and societies. To address this tension between the helpful and harmful potential of data, this Report calls for a new social contract that enables the use and reuse of data to create economic and social value, ensures equitable access to that value, and fosters trust that data will not be misused in harmful ways. This Report begins by assessing how better use and reuse of data can enhance the design of public policies, programs, and service delivery, as well as improve market efficiency and job creation through private sector growth. Because better data governance is key to realizing this value, the Report then looks at how infrastructure policy, data regulation, economic policies, and institutional capabilities enable the sharing of data for their economic and social benefits, while safeguarding against harmful outcomes. The Report concludes by pulling together the pieces and offering an aspirational vision of an integrated national data system that would deliver on the promise of producing high-quality data and making them accessible in a way that promotes their safe use and reuse. By examining these opportunities and challenges, the Report shows how data can benefit the lives of all people, but particularly poor people in low- and middle-income countries.