Perspectives of Tax Reforms in Croatia: Expert Opinion Survey

Perspectives of tax reforms in Croatia: expert opinion survey

HRVOJE ŠIMOVIĆ, PhD* HELENA BLAŽIĆ, PhD* ANA ŠTAMBUK, PhD*

Article** JEL: H20 doi: 10.3326/fintp.38.4.2

* The authors would like to thank three anonymous referees and all participants of Session 1B at the conference “Tax Reforms: Experiences and Perspectives” for their useful comments and suggestions. This work has been supported in part by the Croatian Science Foundation under project number IP-2013- 11-8174 and in part by the University of Rijeka under project number 13.02.1.2.02. ** Received: May 19, 2014 Accepted: September 22, 2014 A previous version of this paper was presented at the conference Tax Reforms: Experiences and Perspectives organized by the Institute of Public Finance, Faculty of Economics and Business, Zagreb and Faculty of Eco- nomics, Rijeka in Zagreb on June 20, 2014. Hrvoje ŠIMOVIĆ University of Zagreb, Faculty of Economics and Business, J. F. Kennedy 6, 10000 Zagreb, Croatia e-mail: [email protected] Helena BLAŽIĆ University of Rijeka, Faculty of Economics, Ivana Filipovića 4, 51000 Rijeka, Croatia e-mail: [email protected] Ana ŠTAMBUK University of Rijeka, Faculty of Economics, Ivana Filipovića 4, 51000 Rijeka, Croatia e-mail: [email protected] ------Survey about State and Perspectives of the Croatian Tax Tax Croatian the of Perspectives and State about Survey a

(Šimović et al., 2013) was conducted. The survey was based on a similar INTRODUCTION ative/positive answers of 61% as degree of consensus and analyzing that degree of degree that analyzing and consensus of degree as 61% of answers ative/positive consensus in more detail. We also wanted to analyze the binomial using possible attitudes system/policy tax on views economic and influence values specific of probit regression. still in (5 year) recession with no positive expectations even in 2014. The decline in economic activity is causing additional political changes instability, to the sys policy. tem of taxation as well as changes in attitudes to the tax system and As in the US survey, our survey encompasses three sectors of experts: govern neg of percentage the using assessed are results The academic. and private ment, Besides that, there are some other motivations behind such an investigation. Croatia Croatia investigation. an such behind motivations other some are there that, Besides has witnessed two relatively turbulent decades and some very influential tax re Above forms. all, the research was begun in order to establish the attitudes of tax experts almost 20 in 1994, years after the fundamental tax reform when consump tion-based taxation (interest-adjusted personal and corporate income tax) was in troduced. Furthermore, apart from Greece, Croatia is the only EU country that is The purpose of our research, like that of the US was survey, to find out what tax experts think about the overall current situation and problems in the Croatian tax system and what they expect from tax policy in the future. Since similar research has never been done in Croatia, the analysis is towards especially directed income reforms. tax Croatian all influenced has which base, tax the as consumption versus 1 2013 of summer the In System Association Tax National the by organized 2013, of beginning the from survey US previ to compared and referred is survey This members. its among ran and (NTA) 1934 (Lim et al., 2013). ous similar US surveys from 1994 and tax decreases/exemptions, as well as a firm commitment to the principle of equity. equity. of principle the to commitment firm a as well as decreases/exemptions, tax The last three economic views/values are important predictors of other tax atti tudes. Croatia tax system, tax policy, reform, tax opinion survey, Keywords: we present the results of a broad expert opinion survey about the Croatian tax system. The most interesting results suggest the of maintenance/(re)introduction different tax incentives and rates, reduced VAT rejection of a flat tax as well as introduc the duties, tobacco and alcohol in increase an brackets, tax of decrease tion of a financial activities tax, a further shift from incomeof responsiveness behavioral the in tobelief a and GDP in share tax the of consumption,decrease a Abstract state- current the assess to objectively necessary is it reform tax shape to order In previ all reviewed having After system. tax the for outlook the of and of of-the-art ous reforms in the light of the consumption-based (interest-adjusted) concept of 1994, in Croatia in implemented systematically almost was which taxation, direct

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 406 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

407 38 (4) 405-439 (2014) ------and this remains even now. On the other hand, it could be argued that it is it that argued be could it hand, other the On now. even remains this and

At that time, Croatia was the only country consistently imple consistently country only the was Croatia time, that At (PIT and CIT). According to that, special contribution to the debate TAX REFORMS IN CROATIA REFORMS TAX For the literature overview of the debates and arguments about the consumption versus income concept of The term “corporate income tax” used in this paper for the reasons of international comparability, would not not would comparability, international of reasons the for paper this in used tax” income “corporate term The not want to opt to pay a corporate income tax). In order to mitigate the problem, the Croatian legislation has perso of instead tax income corporate paying of option the self-employed the given beginning very the from big is business the if it pay to have or tax income corporate pay to opt can self-employed the – tax income nal enough in terms of number of employees, assets, income or turnover (see also Blažić, 2008). the classical income tax concept – between the corporate and the non-corporate sector – was avoided, as the requires, concept tax consumption busi and tax income corporate pay that (enterprises) units business between distortion the by replaced simply ness units that pay personal income tax (self-employed in “crafts and trades” that are relatively small or do 2000, see Schmidt et al. (1996), Rose and Wiswesser (1998), Keen and King (2002),Blažić (2008). Klemm (2007) and be completely appropriate for Croatia. The tax payers of this tax are corporations, but also parts of the non- of distortion typical the way this In traders). sole even and status” “trader with (partnerships sector corporate taxing personal and corporate income in Croatia see Šimović (2012: 10-11), for the general literature over Blažić see tax, ACE especially taxation, consumption-based of disadvantages and advantages the about view (2006: 67-68). For contributions to the debate, and especially concerning the CroatianACE model 1994- to encompass some capital incomes, but the main part of them was still exempt. changes substantial no were there Act, Tax General the of introduction from Apart after parliamentary elections and a change in the party changes happened in in the field of corporate and power. personal income tax, The ACE where biggest was abandoned and numerous incentives introduced. Personal income tax started However, However, Croatia relatively quickly abandoned interest-adjusted personal corporate and income tax in its second great tax reform from 2001, which followed taxes were also introduced, and the number of retail sales tax rates was Although gradually (VAT). tax added value of introduction the for prepare to order in reduced 1998. in 1995, it only entered into force in law was enacted VAT the first “synthetic” personal income tax that in some elements still departed from the inter the from departed still elements some in that tax income personal “synthetic” est-adjusted income tax (the treatment of income from real estate) excise new 1994 In but also. (self-employed) income business included for interest” “protective income tax Allowance forwas CorporateinfluencedEquity by (ACE) the tax (called “protec tive interest” in Croatia). In addition to corporate income tax, Croatia introduced was in the spotlight of the numerous debates in the Croatian as well as literature. tax tional interna menting consumption-based taxation – interest-adjusted personal and corporate 2 In 2014, Croatia will mark 20 years from the first big tax reform,foundations of the whichcurrent tax system to a setgreat extent. The tax system from up 1994 views (concerning behavioral responsiveness as well as incidence) influence ex policy opinions. perts’ part, the tax survey is analyzed giving an overview of the attitudes and outlining bino entails part fourth The experts. tax Croatian among consensus prevailing the mial probit regressions in order to determine how specific values and economic After After the introduction, the second part of the paper gives Croatian a tax short reforms, overview with of a special emphasis on changes taxation related concepts to of the direct main taxation (income versus consumption). In the third

- - So, of the tax tax the of modus operandi operandi modus Abolition of immediate write-off and enhanced accelerated Abolition of immediate write-off form of doubled depreciation (the accelerated depreciation in the depreciation rates from before 2007 remains) incentives Modifications of CIT and life Abolition of deductibility for voluntary pension insurance insurance premiums (from saving-adjusted to interest-adjusted model) Reintroduction of dividend taxation (towards the income concept, but not systematically) Non-taxation of reinvested profit Introduction of capital income taxation (dividends and part of interest) Introduction of capital income taxation (dividends ACE and introduction of numerous incentives (tax Abolishment of holidays) accounts, Non taxation of most interest (bank saving and deposit securities) and capital gains from financial assets of most Some dual income tax elements retained (linear taxation tax) capital/property income by the way of final withholding but also voluntary pensions as well as life Not only compulsory, insurance contributions deductible (and later taxable) and enhanced accelerated depreciation Immediate write-off Abolition of dividend taxation Non-taxation of capital income (exception: property income) Non-taxation of capital income for business income) and PIT ACE (at CIT

– – 2010 – 2012 – – 2001 – – income tax Elements of consumption concept: interest-adjusted – – income tax and Elements of consumption concept: saving-adjusted cash-flow tax – – 2005 “Mini” tax reform – Basic changes 1994 – – 1 able adjusted and saving- adjusted) 2005-2013 Hybrid system – elements of income- based and consumption-based taxation (interest- elements: savings and interest-adjusted PIT and CIT) system (interest- and adjusted PIT CIT) 2001-2004 Mostly income-based system (with some of consumption-based Period and system 1994-2000 Consumption-based In contrast to the tax reform from 1994, that of 2001 did not cause Although nearly it as was much debate. shown that this reform brought about a significant decrease in the tax burden, it remained questionable whe questionable shown decrease in the tax burden, it remained reform brought about a significant that this Source: Authors. Source: ther the results of the changes were the original intention of tax policy creators (Švaljek, 2005). T Overview of tax reforms and changes in the tax system relevant for the income/ consumption concept element of consumption-based taxation at the entire business (corporate and per The sonal current – Croatian self-employed) tax level. system is a hybrid system, where both the elements of income-based and consumption-based taxation con mostly depends concept particular the of domination the where and present are cept party. on the current ruling in other tax forms. It could be said that this tax reform shapes in a substantial way substantial a in shapes reform tax this that said be could It forms. tax other in as system tax Croatian the of characteristics present the which are system changed and with policy, every change of the ruling party. dividends of taxation the abolished 2005 of beginning the at reform tax “mini” the again (which was reintroduced in 2012), but ACE did as not the bring basic back

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- - - - - have been ap tax Löfgren and Nord were the popula 2 or more specific SURVEY METHODOLOGY SURVEY 2013 EXPERT OPINION SURVEY ABOUT TAX POLICY IN CROATIA IN CROATIA POLICY TAX ABOUT SURVEY OPINION 2013 EXPERT For instance for US: Behrens (1973), Fisher (1985), IRS (1993), McCabe and Stream (2006), Campbell Table A1 in appendix entails detailed information about respondents’ structure. A1 in appendix entails detailed information about respondents’ Table For instance for cigarette taxes Green and Gerken (1989), for local tax rates Ashworth and Heyndels (1997), (1997), Heyndels and Ashworth rates tax local for (1989), Gerken and Green taxes cigarette for instance For compliance and morale Torgler and Schneider (2005, 2007), Alm et al. (2006), Eicher and Stuhldreher (2007), (2007), Stuhldreher and Eicher (2006), al. et Alm 2007), (2005, Schneider and Torgler morale and compliance Randlane (2012), for the estate tax Birney et al. (2006), Fatemi et al. (2008), for CO blom (2010), for minimum corporate tax rates Osterloh and Heinemann (2013). for (2001), Hutchison and Fleischman tax flat and tax estate for (2000), McGowan taxes sales and tax flat for the income tax Eicher et al. (2001), Hasseldine and Hite (2003), for environmental taxes Thalmann (2003), Kallbekken and Saelen (2011), for tax deductibility of der mortgagesHeijden Van et al. (2007), for the tax (2009), Lim et al. (2013), for Israel: Dornstein (1987), Austria:for Kirchler (1999), Australia:for Murphy (2004), for Sweden: Hammar et al. (2008). employees in tax accounting, advising and publishing companies. employees in tax accounting, advising fice, heads of regional and local offices) and local and regional government units mostly means sector private The units). those of departments finance the of (heads tax advisors, but also some lecturers of private business polytechnics as well as ties) of economics at universities and research institutes that devote at least part of part least at devote that institutes research and universities at economics of ties) their scientific and teaching work to the tax system and The policy. government Of Central inside sectors of (employees Administration Tax the of consists sector Lim et al., 2013) the tax experts that could be divided into the following groups: academe, the government three sector and the private sector (facul departments at researchers and professors include Academics targeted. tion responded. 1994; Slemrod, 1935; (Walker, surveys mentioned relevant the with accordance In e-mail at the beginning of May to 1,000 addresses and sent to other addresses in small a with page, web by gathered were answers the of Most July. of middle the part by post (in hard copy). Out of the population of 1,000 experts targeted, 304 authors and tax practitioners) some questions were omitted/clarified. some questions were omitted/clarified. authors and tax practitioners) The survey was performed between May and July 2013. The call was sent by specific questions about the most topical tax policy elements in Croatia. The basic The Croatia. in elements policy tax topical most the about questions specific yes/no/other question methodology has also been changed and Likert items levels) (5 are used instead. After the pilot (a couple of academic colleagues of the of modifications had to be made, with the majority of new questions introduced as introduced questions new of majority the with made, be to had modifications of well as a lot of questions omitted/changed. The 92 questions combine (i.e., general statements) issues and questions concerning the basic types of taxes, with plied in taxation research. The Croatian survey is mostly based on the latest US expert opinion survey NTA (Lim et al., 2013; DeGroat, 2013), which has a long history 1935; behind Slemrod, it 1994; (Walker, Brannon, 1995). a However, lot 3 3.1 Opinion/attitude surveys, either rather general An overview of tax reforms in Croatia with special emphasis on the changes in table 1. in is presented concept or the income the consumption to either direction - - 36 32 68 73.9 Private 33 38 71 77.2 Government 35 36 71 77.2 Academic . Table A2 in appendix includes detailed data for data detailed includes appendix in A2 Table . 29 35 64 69.9 Total 2 DEGREE OF CONSENSUS DEGREE OF able Total 61-100% (in %) Total Degree of consensus Degree 61-74% Total 75-100% Total 61-100% Total This arbitrary but seemingly reasonable threshold for consensus is taken for the relevant comparison with US with a higher level of consensus in 2013 in comparison with 1994. the US survey also (Lim et al., 2013). More certain degree would be 75% for sure, so this is also taken into account. (total) consensus, which is not the case more at much is there the sectors, into divided level are experts the of When (sectors). spondents particular groups of re homogeneity inside each sector, so a higher percentage of consensus was result to will society Croatian be the of development further the that hope We expected. in a higher level of legal certainty and tax stability, which could also lead higher to degree of a consensus between tax experts. Such a trend is observed in the by only 64 statements or 69.9%. If the consensus threshold were raised to 75% equal answers, the number would decline to only 38% (35 out of 92). Due to the consen of degree low a such Croatia, in changes law tax and reforms tax frequent sus was to be expected. It is interesting that a one. private the to contrast in sector government and academic the inside reached slightly broader consensus was Unfortunately, there are a significant number of statements without any general Source: Authors based on survey responses. Source: the in 61% above consensus of degree a had 100) of (out questions 84 as many As elicited was survey Croatian in consensus of degree a such while survey, NTA US Degree of consensus (number of questions, excluding the neutral response) of consensus (number of questions, excluding Degree “mostly agree”, while the answers under “no” entail answers “mostly disagree” and “totally/strongly 2 disagree”. Table presents the number of answers with the 61% least at of degree consensus for all 92 survey statements/questions. the degree of consensus T 3.2 positive 61% least at survey, NTA relevant the with comparison enable to order In or negative answers (excluding neutral responses) are taken as the threshold for consensus (Lim et al., 2013). Since the Croatian survey was made with 5-level Likert items, the answers under “yes” entail answers “totally/strongly agree” and As in similar surveys, the 92 survey questions could be thematically divided into a handful of groups: property taxes, personal income tax, corporate income tax, addition, In values. and issues tax general contributions, social taxes, excise VAT, some general questions were set to establish the demographic and professional of the respondents. characteristics

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411 38 (4) 405-439 (2014) ------securities. SPECIAL TAX ISSUES TAX SPECIAL tion of capital incomes. Concerning additional arguments in favor of lower divi dend taxation, there betweenare thesignificant academic differences and the pri Concerning the different tax treatments of incomes from labor and from capital, the private sector was alone in not achieving a consensus against the lower taxa but this could not be broadened to include capital income taxation in Al general. though a consensus was reached concerning dividends and financial capital gains taxation, there was no such consensus about interest on saving and that tax allowances (deductions) for voluntary pension and life insurance, health insurance/costs and owner-occupied housing should be reintroduced. It could be concluded that respondents strongly share the common vertical equity principle, a consensus. Most of the respondents agree that the lowest (but not also the high intro be not should tax flat a that reduced, additionally be should rate marginal est) duced, that there is no need to reduce the number of tax brackets any further and not think that a real estate tax should distinguish between citizens and business. not think that a real estate tax should distinguish reached progressivity, about those especially statements, tax income personal Most gift taxes in Croatia and the US, it is hard to make any meaningful comparisons. Still, respondents in both countries share the traditional view that real estate tax do generally experts US Croatian, unlike hand, other the On tax. local a be should and 65% in favor), in contrast to the private sector (68% against). against). (68% sector private the to contrast in favor), in 65% and Concerning the relatively systems different of property taxes and inheritance and concerning the statement that citizens should not pay higher rates in than businesses, businesses, than in rates higher pay not should citizens that statement the concerning citizens. than rates higher pay should business that statement the concerning not but (62% the statement latter and supported sector academia the government Naturally, well as the real estate transfer tax and for property being a necessary additional indica additional necessary a being property for and tax transfer estate real the as well the tax about ideas different have the respondents Furthermore, to pay. tor of ability reached was consensus Overall citizens. and business for tax estate real the of burden greatest opposition is while and private opposition found govern in greatest the community, academic ment sectors reached a in consensus favor of that tax. was Consensus also reached as of tax a being real the estate about surcharge local tax, for local the maintenance Concerning property taxation, only half of the statements reached the percentage for for percentage the reached statements the of half only taxation, property Concerning to introduc the related question main The (61%). reached been to have a consensus tion of real estate tax no 59% reached (“only” of consensus in answers The favor). As mentioned the previously, 92 statements are divided into several groups con A2). issues (see table cerning special tax among the questions in which a consensus is achieved. questions in which among the 3.3 However, there are some contrary statements, even when a consensus was reached. reached. was consensus a when even statements, contrary some are there However, So it is hard to reach an agreement concerning specificanalysis. Still, issues there withoutis further a significant differencein the degree of consensus even

------= 0.365; s ). Some “modified ele It seems that experts strongly experts that seems It = 0.431; p < 0.01). Moreover, these Spearman correlations are cal are correlations Spearman these Moreover, 0.01). < p 0.431; = s = -0.304). s = -0.262). The same is true for the correlation between advocating dividend advocating between correlation the for true is same The -0.262). = s =- 0.340, r 0.340, =- = 0.878; p < 0.01) and much lower between former and interest taxation (r s s due to the development of the financialA system. similarconclusion = -0.295, r -0.295, = s There is, of course, negative correlation between advocating capital incomes taxation (Q24, 25 and 26) and 26) and 25 (Q24, taxation incomes capital advocating between correlation negative course, of is, There Not surprisingly, there is Not a surprisingly, strong and highly significant correlation between advocating dividend and cap p < 0.01) and later and interest taxation (r taxation interest and later and 0.01) < p type answers (1-5).The same applies to footnote 9. culated for original Lykert their lower taxation than labor incomes The (Q28). correlation are coefficients highly significant (p < 0.01), (r low but taxation and their lower taxation (r comprehensive taxation, but some views regarding capital income, property and is not undivided. inheritance and gifts mean that such a view ital gains taxation (r cially concerning capital income taxation, where the US system is strongly devel strongly is system US the where taxation, income capital concerning cially oped, also could be drawn regarding the numerous tax allowances/deductions that exist in the US personal income tax system. However, some characteristics in common could be found – affinity to stronger personal income tax progressivity as well as capital the at especially US, the in income capital of taxation about disagreements gains level. There is also a general conclusion about the preference for stronger (by a way of final withholding tax) in contrast to wages/salaries. The recent idea order in way same a in incomes labor all tax to Finance of Ministry Croatian the of (for the time being) rejected. to get additional budgetary revenues was espe survey, US the with comparisons make to hard is it case, previous the in As advocate classical comprehensive income taxation. One could then expect to get a get to expect then could One taxation. income comprehensive classical advocate (positive) consensus about the taxation of all sources of income in the same way the in only achieved is consensus this but question), control the as Q27 (regarding (could is question the since case, the be not may this However, sector. government be) related to currently taxable (mostly labor) incomes in Croatia and the very rates lower at taxed being work part-time) (additional, “other” of problem topical said, could be partially attributed to the individual taxpayer’s circumstances (in contrast to dividends and financial capital gains taxation ment” of consumption-based taxation – a hybrid system between the income and the consumption concept – a lower taxation of capital incomes (instead of their being exempted) – the case of dual income tax, support. which no reached is again, has, system, coming tax Croatian strongly into Due to the long tradition of a consumption-based (interest-adjusted) system of direct taxation in Croatia in general and especially interest-adjusted personal in higher a 2001, after even force in remained which of elements basic the tax, come preference of experts for this concept could have been expected. The only already such as and, securities) (and savings on interest of area the in seen is preference vate sector on the one hand (accepting it) and the government sector on the other hand. There is a general agreement that capital incomes should not be taxed at lower rates, but there is no consensus about equal treatment of all sources of in come or preferential dividend taxation – moreover, there are strong differences sectors. between particular

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413 38 (4) 405-439 (2014) ------) contributions. ) compatible with EU requirements. Yet one of Yet ) compatible with EU requirements. 10 pletely expected, since the Croatian VAT rate of 25% of rate VAT Croatian the since expected, pletely high preference of experts for vertical A huge equity. majority (97%, and Recent CCCTB development trends should be taken into account, including even the possibility of future 10 shift of this tax base from optional to compulsory. prevail, could be established. Most experts support excise taxes on cars, aircrafts and vessels, while no consensus was reached for excise taxes for coffee and car insurance premiums. Interesting, a consensus was reached for introducing excise raised”/“be lowered”. In contrast, most think that excise taxes on tobacco and to be should products luxury of taxation that and increased be should products bacco opinions similar where survey, US the with resemblance some Here, reintroduced. There is high degree of consensus for most statements in the field of excise taxes. taxes. excise of field the in statements most for consensus of degree high is There Most think that different excise taxes on energy and electricity should “not be 100% for the private sector) claim that rate the should standard not VAT be in com is which further, creased 27%) in the EU. is the second highest (after Hungary with maintenance of reduced rates for basic as foodstuffs well as their extension to all rela mentioned already the by explained be could attitude an Such products. food tively Experts are mostly against aiming at having only one (standard) VAT rate and also and rate VAT (standard) one only having at aiming against mostly are Experts the concerning reached was consensus a So, rates. reduced the of abolition against They are probably aware of the relatively low effective rate due to numerous in centives. No comparison of the US and the Croatian survey is possible, since the questions completely differ. and Italy at that time). Interestingly and relatively unexpectedly, no consensus has consensus no unexpectedly, relatively and Interestingly time). that at Italy and been reached for the lowering of the CIT rate. It is especially interesting that the private sector is the only opponent, reaching a consensus against rate lowering. system is still (for the time being (which EU the in uniqueness its was Croatia in withdrawal its for given reasons the was only partially true, due to some already existing Austria ACE elements in of vestment allowances). Especially pronounced is the high degree of support (91%) (91%) support of degree high the is pronounced Especially allowances). vestment for R&D and educational high A incentives. degree of consensus is achieved for reintroduction ACE, of favoring consumption-based taxation at the corporate le such that proves Belgium of experience The level). personal the to contrast (in vel There is consensus for almost all statements in the field of corporate income tax. differ so activity, economic boost should it that consider respondents the of Most ent incentives should be retained or (re)introduced tax (different holidays and in there is no general consensus, the private sector and academia circles support an pillar (individual capitalized saving accounts increase in the second here between the private sector (against abolition) and the government sector (in favor of abolition). Most of the respondents consider the first Although pillar contributions lowered. be should they suggesting high, too solidarity) (intergenerational Experts do not consider that the minimum monthly assessment base for social con social for base assessment monthly minimum the that consider not do Experts abo the for consensus no is there hand, other the On abolished. be should tributions lition of a maximum base (a ceiling). Furthermore, there is a strong disagreement ------. The bulk of these of bulk The . 11 s are close to those in the US survey. s are close to those in the US survey. GENERAL TAX ISSUES, EXPERTS’ VALUES AND ECONOMIC MODEL AND ECONOMIC VALUES ISSUES, EXPERTS’ TAX GENERAL However, one should keep in mind that the neutral answer (3) was eliminated from the survey results. Where Where results. survey the from eliminated was (3) answer neutral the that mind in keep should one However, 11 it comes to such economic modelling statements (as well as value statements) such skepticism/indecisive ness could be reasonable, expressing no lack of knowledge of the respondents, but their awareness of com The inclusion of neutral plexity. answers in these statements would make the results a little bit less optimis tic (Blažić, Šimović and Štambuk, 2014). While the US experts consider consumption taxes regressive, Croatian experts (except academics) have reached no consensus about Maybe regressivity. this is due to the lack of knowledge of other groups about that term. However, experts con to mostly shifted is CIT that consensus the reached have countries both from sumers and employees. think that lower marginal income tax rates increase work effort and reduce leisure reduce and effort work increase rates tax income marginal lower that think lost revenue the that so base tax the increase would change a such that and (81%) could be compensated for (65%). Most think also that non taxation encourages saving (78%) of and respectively non taxation interest of financial capital gains (65%) growth economic promotes and investment encourages reasoning cated introduction of a financial transaction tax, as it is the case in the US survey. cated introduction of a financial transaction tax, as it is the case in the US survey. the of One tax. activities financial a about consensus a is there hand, other the On reasons for attitudes the to different those financial sector taxes could be the con of the former tax. cern of the experts about the incidence There is also consensus concerning some views about economic effects. Most these statements are mostly in accordance with the US experts’ opinion. with the US experts’ these statements are mostly in accordance Most experts think that the share of government in GDP revenues and expenditures) should (measured be decreased. In accordance with that there by is public lowered be should burden tax entire the that statements related about consensus a and the tax structure changed. There is no consensus about the currently advo This attitude is expected, taking into consideration the previous survey parts about parts survey previous the consideration into taking expected, is attitude This general the and inheritance historical the by explained be could It taxes. particular justice awareness that prevails present is consensus in of degree high Croatia, A but crisis. economic maybe the to due also tendencies policy by some recent tax for the statement that penalties for tax evasion should be increased and adminis for results The decreased. levies para-fiscal as well as costs compliance and trative the US survey. In contrast to the US survey, no overall consensus has been reached for for reached been to are as policy comparable pretty has These questions well as models. some economic consensus overall no survey, US the to contrast In survey. US the exists. consensus partial some here even although statements, the of three For many questions the degree of consensus is high (over 75%). Most of the re spondents solve the traditional “equity-efficiency trade-off” favorin equity. of taxes taxes on “junk food”, where the Croatian differ from the US experts, who do not taxes. such special support 3.4 and system tax the about attitudes general to relate statements survey twenty last The

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415 38 (4) 405-439 (2014) , ------), ), and The equity The equity The entire tax entire The ). In both cases, the and Q91 ( The tax burden should burden tax The those that gave that gave gave that gave that those – and Q80 – Q80 and The tax burden should be shifted from from shifted be should burden tax The Non taxation encourages of saving interest , Q79 – Q79 , Different Different government tax reductions (reliefs, in , Q86 – ) are The used second as predictors (independent variables). Non taxation of financial capital gains encourages investment and pro The equity principle should have precedence over the efficiency principle VALUES DETERMINANTS OF EXPERTS’ POLICY OPINIONS IN CROATIA IN CROATIA OPINIONS POLICY EXPERTS’ DETERMINANTS OF The entire tax burden (the level of taxes relative to GDP) should be reduced be should GDP) to relative taxes of level (the burden tax entire The pendent variables (predictors). The respondents that support the reduction in the entire entire the in reduction the support that respondents The (predictors). variables pendent GDP) to relative taxes of level the as (expressed burden tax burden (the level of taxes relative to GDP) should be reduced) to should GDP) relative of taxes level (the burden policy tax creating in principle efficiency the over precedence take should principle inde as chosen were policy, tax concerning views different express somehow which This part of the analysis wants to establish the influence of tax equity values and gen and values equity tax of influence the establish to wants analysis the of part This attitudes professional on economy the in role government’s the concerning values eral Q75 ( influence, that to establish In order policy. and system tax about sess future tax trends were chosen as dependent variables. sess future tax trends were chosen as dependent 4.1 Seventeen different models are observed, where seventeen questions/statements that best reflect topical disputes inCroatian tax systems and could be used to as and education level) as They independent are variables. not particularly analyzed but detailed probit regression results, as well for demographic characteristics, are A4 in appendix. A3 and presented in table personal and corporate income to consumption to income corporate and personal be shifted from personal and corporate income to property regression includes also demographic characteristics (employment-sector, age Q85 – motes economic growth growth economic promote centives) part of the analysis encompasses particular economic views related to the behav ioral responsiveness and tax incidence, whose predictors (independent variables) are tested over five questions (Q84 – – Q91 – tax policy in creating one) are observed. As in other relevant research (Lim et al., 2013), the analysis is one) are observed. aimed in two directions. The first part analyses tax expert’s attitudes related to some value judgments (values) in the area of taxation, where two questions (Q75 This part of the paper analyses factors that Croatia using a serial influencebinomial As probit in regression. the case of the degree for tax experts’ attitudes in neutral the (without answers negative and positive only reached, being consensus ducted reform of stated investment incentives (their narrowing). incentives (their of stated investment ducted reform 4 reached only in the academic community (68%), while the percentage of negative of percentage the while (68%), community academic the in only reached answers in the private (58%) and government sector (51%) was not high enough. It could be concluded that this attitude supports recently (after the survey) con The efficiency of regionalVuko tax investment incentives in Croatia (the city of var and areas of special national concern) is one of the questions where no gen eral consensus was achieved. A consensus about them not being efficient was - ) – 13 and and The entire tax burden burden tax entire The Not unexpectedly they 14 positively are more inclined more are positively

12 ) is also a more significant predictor than the Q75 The entire tax burden (the level of taxes relative to GDP) GDP) to relative taxes of level (the burden tax entire The could be regarded as having more (neo)liberal economic views, views, economic as be could more (neo)liberal having regarded The equity principle should take precedence over the efficiency the over precedence take should principle equity The ) reflecting values in the field of taxation. taxation. of field the in values reflecting ) The The equity principle should take over precedence the efficiency principle in The entire tax burden (the level of taxes relative to GDP) should be reduced) reduced) be should GDP) to relative taxes of level (the burden tax entire The However, there is no statistical significance established for other capital incomes. there is no However, There is a positive influence on interest taxation also, but without statistical significance. It is harder to make the comparison with the US survey in this context since the set of observed models, i.e. models, observed of set the since context this in survey US the with comparison the make to harder is It The entire tax burden (the level of taxes relative to GDP) should be reduced) similar comparable context. In the US survey the question “Is the redistribution of income within the United In the US survey the question “Is the redistribution context. comparable similar States a legitimate role for government” turned out to be more important predictor (with the negative influ ence on attitudes of lower capital income and dividend taxation) than the question about higher equality of income distribution in the US (Lim et al., 2013: 790-791). 13 14 of capital incomes such as dividends and capital gains. are also in favor of a financial transaction tax and especially a financial activities Needless sector). banking “undertaxed” the on tax pay to ability additional (as tax 12 dependent variables is somehow The different. predictors are not identical also, but they could be put in the not inclined to the taxation of interest income (as well as other capital incomes taxation concept. following consumption-based (interest-adjusted) that (those equity vertical for role greater a for preference a expressing experts Tax reacted positively to Q91) more are, inclined expectedly, to the introduction of a real estate tax (as additional indicator of ability to pay) as well as to the taxation (the level of taxes relative to GDP) should be reduced) reduced) be should GDP) to relative taxes of level (the para- reduce to inclined also are They SMEs. for especially rate, CIT the reduce to fiscal levies and consider that the government should be financed less fromtaxes and more from user charges. This could be explained by their inclination to the benefit principle (“quid pro quo”) as an alternative (in older) effect understanding also are they why is That principle. pay to ability the of instead (equality) equity of principle in tax creating policy ( which could imply that the equity principle is the dominant value in shaping tax attitudes for most of the experts. ( Q75 to answered that those i.e. experts, tax neoliberal More Presented results imply relatively consistent attitudes of Croatian tax experts. For experts. tax Croatian of attitudes consistent relatively imply results Presented the most observed models, the experts with neoliberal economic views have mo taxation. in equity greater advocate that experts the than preferences different stly ( Q91 Furthermore, intervention regarding redistributive issues. Concerning consumption-based taxation, taxation, consumption-based Concerning issues. redistributive regarding intervention be to group latter the and of favor in more be to expected be could group former the variables for regression probit binomial of results the presents 3 Table it. against more ( Q75 Q91 ( policy tax creating the positive answer to Q75 ( Q75 to answer positive the be should reduced) those hand, other the On economy. the in government of role smaller a advocating i.e. that claim the state equity is higher i.e. more important than the equity, for efficiencyprinciple (compared to role greater a support negatively) answered have that those

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 416 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

417 38 (4) 405-439 (2014) - 2 c χ 7.758 3.443 5.012 5.067 9.150 5.973 4.136 8.783 18.562 19.636 10.177 14.573 15.518 65.922 12.132 19.890 14.658 (0.006) (0.010) (0.006) (0.354) (0.841) (0.179) (0.042) (0.659) (0.408) (0.242) (0.543) (0.030) (0.096) (0.041) (0.764) (0.269) (<0.001) b 0.485 0.067 0.047 0.741 0.580 0.327 0.288 0.179 0.843** Q91 0.740** 0.820** 1.378*** 0.752** -0.048 -0.141 -0.475 are are in brackets. Other eating tax policy. -0.672* (0.526) (0.353) (0.332) (0.345) (0.358) (0.328) (0.394) (0.412) (0.466) (0.372) (0.314) (0.360) (0.386) (0.364) (0.337) (0.320) (0.345) 2 χ

a 0.841** Q75 0.129 0.279 0.031 0.014 0.223 0.206 0.955*** 0.893** 0.810** -0.486 -0.306 -0.167 -0.577 -0.264 -0.519 -0.782** (0.342) (0.482) (0.328) (0.447) (0.421) (0.350) (0.359) (0.428) (0.430) (0.408) (0.324) (0.324) (0.343) (0.341) (0.454) (0.392) (0.362)

tests the hypothesis that at least one of the regression coefficients is not equal to zero. coefficients is not equal tests the hypothesis that at least one of the regression 2 3 taxes and more from different non-tax revenues taxes and more from different user charges). (with an emphasis on different ACE) should be reintroduced. (reduced rates should be narrowed/eliminated). taxation. be taxed. introduced (a flat tax) along with maintenance of introduced (a flat tax) along personal exemptions. tax. General government should be financed less from General government should be financed less from Croatia should introduce the proposed real estate Croatia should introduce Inside PIT interest on saving and securities should Inside PIT Reinvested profits should be exempt from Protective interest (allowance for corporate equity, rate should be aimed at VAT Only one/standard Instead of more PIT rates only one rate should be Instead of more PIT maintained. i.e. synthetic taxation of property (net wealth tax). i.e. synthetic taxation of too (movable property, financial property, etc.), financial property, too (movable property, Tax incentives for investment should be Tax Taxation should include other forms of property should include other Taxation in the same way (at statutory rates, without allowing the lower withholding tax to be final). All sources of income inside PIT should be taxed All sources of income inside PIT able Q76 Q81 Para-fiscal levies should be reduced. Q74 A financial activities tax should be introduced. financial activities tax should be A Q74 Q73 A financial transaction tax should be introduced. financial transaction tax should be A Q73 Q30 CIT (general) rate should be reduced. Q30 CIT burden for SMEs should be reduced. Q31 CIT Q25 Inside PIT financial capital gains should be taxed. financial capital Q25 Inside PIT Q24 Inside PIT dividends should be taxed. dividends should Q24 Inside PIT Question/statement Q01 Q26 Q27 Q32 Q39 Q40 Q42 Q03 Q16 b) Q91 – The equity principle should be prior to efficiency principle in cr χ c) Wald calculation. Authors’ Source: regressors include indicators of sector of employment, age and education. regressors * p < 0.1; ** p < 0.05; *** p < 0.01. the GDP) should be reduced. (the level of taxes relative tax burden a) Q75 – Entire Notes: Robust standard errors are in parenthesis. The p-values of the T for values results regression probit Binomial to say that they are against the flat tax, which, due to its indirect progressivity, jeopardizes the traditional equity-founded appreciation of the ability to pay prin ciple. ------Non QP85 ( ) turned out to be the best the be to out turned ) Different government tax government Different ) are used. Table 4 presents the results Table ) are used. ) turned out to be a less important pre The tax burden should be shifted from and Q80 – Non taxation of financial capital gains encourages The tax burden The should tax be burden personal shifted and from cor Non taxation of interest encourages saving), ) are used and for the tax incidence additional two ques Different government Different tax incentives) (reliefs, reductions pro ) and QP86 ( ECONOMIC VIEWS ECONOMIC dictor. The experts that answered this question positively (compared to those that dictor. but only, taxation gains capital of favor in not logically, are, negatively) answered also of dividend taxation as well as a financial activities tax. Since the non-taxa character crucial the of one is incomes) capital all as well (as gains capital of tion “interventionist” approach than the newest reform tendencies in favor of these taxes. Q85 ( Since it is more narrow, economic growth investment and promotes eighties on, it is still popular especially in the tax practice of developing countries developing of practice tax the in especially popular still is it on, eighties and (post)transition economies. The recent (re)introduction of numerous incen tives in the developed countries at the beginning of the economic and financial crisis, shows that they are indeed still compatible with a modern tax system. Fur estate real of favor in are Q86 to positively reacted that respondents the thermore, tax as well as net wealth tax, which could be easier explained by a traditional are also not inclined to abolish reduced VAT are rates. also This not approach inclined in to favor abolish of reduced tax VAT incentives and reliefs could be regarded as “classical interventionist” approach, where economic efficiency is not understood in a sense of neutrality, but more say this has been Although the critics could approach. from a (cost)-effectiveness consigned to history and is definitely incompatible with modern consumption- the from general in proposals reform tax modern with as well as proposals, based Among behavioral response questions/statements, Q86 ( Q86 questions/statements, response behavioral Among growth economic promote incentives) (reliefs, reductions The predictor. experts that answered that question positively (compared to those from profits reinvested the exempt to inclined more are negatively) answered that They levies. para-fiscal reduce to and incentives tax different maintain to taxation, of a binomial probit regression for the stated variables. of a binomial probit Results relating to tax incidence show a relatively consistent attitude among tax experts. On the other hand, there are some inconsistencies concerning behavioral concern analysis the of part the in to referred been already have which responses, achieved. ing the degree of consensus taxation of financial capital gains encourages investment and promotes economic economic promotes and investment encourages gains capital financial of taxation growth mote economic growth tions/statements (Q79 – porate income to consumption personal and corporate income to property 4.2 In order to establish the prevalence of specific economic views in taxation, state ments/questions that relate to behavior taxpayers’ and tax incidence are used as independent variables (predictors). For the behavioral taxpayers’ response ques tions/statements QP84 (

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419 38 (4) 405-439 (2014) - - - ) - - - ), which Non taxation Non taxation of finan ) showed all the controversiality ) turned out to be significant predictors, which work in the expected the in work which predictors, significant be to out turned ) Different Different government tax reductions (reliefs, incentives) promote eco Non taxation of interest Non taxation encourages of saving interest the question about influence of taxation on private saving turned out to weakest predictor (Lim et al., 2013: 791-793). be the direction in most of the tested models, i.e. imply similar attitudes of the tax estab ex be could tendencies Similar mechanisms. incentive tax different about perts where similar attitudes prevail lished and in relation with the relevant US survey, of financial capital gains encourages investment and promotes economic growth economic promotes and investment encourages gains capital financial of and Q86 ( growth nomic implies a lot of disagreements but also inconsistences among tax experts. implies a lot of disagreements but also Regardless of the stated inconsistencies, statements/questions Q85 ( less of statistical insignificance of other relationships, it is interesting that some of some that interesting is it relationships, other of insignificance statistical of less them are of a different direction in comparison with Q85 ( cial economic capital growth gains encourages investment and promotes characteristic of consumption-based (interest-adjusted) taxation and Hall-Rab ushka flat tax – one of the typical examples of interest-adjusted personal income Regard explained. additionally be to needn’t rate one only with accompanied tax a negative influence presented concerning the need for interest taxation (Q26), it is not statistically significant. Q84 turned out to be significant predictor only for basic the of one as interest of non-taxation between link The introduction. tax flat Q84 ( of interest taxation attitudes as well Although as there of is the survey in general. in accordance with consumption-based approach or the more general modern “base modern general more the or approach consumption-based with accordance in of lowering rate and incomes capital of non-taxation where approach, broadening” measures. advocated as better and more neutral incentive taxable incomes are It is interesting that the same experts do not think that CIT incentives should be completely is it public, general the to peculiar seem could it Although maintained. significantly so). Furthermore, those interested in reducing the tax burden and tax and burden tax the reducing in interested those Furthermore, so). significantly distortions in financial markets are, logically again, not in tax. transaction favor of a financial istics istics of consumption-based (interest-adjusted) taxation it is completely logical that the same reasoning should be broadened to include dividend taxation (and also interest taxation, where the relationship is negative also, but not statistically

reintroduced. (0.410) (0.430) (0.629) (0.950) (0.364) (0.394)

0.307 0.074 -0.149 3.929 -0.353 -0.261 Protective interest (allowance for corporate equity, ACE) should be be should ACE) equity, corporate for (allowance interest Protective Q40

(0.571) (0.593) (0.672) (0.149) (0.423) (0.777)

Q39 Tax incentives for investment should be maintained. be should investment for incentives Tax Q39

1.194** -1.243** 0.582 13.31 -0.466 -1.542**

(0.383) (0.386) (0.489) (0.049) (0.354) (0.352)

Q32 Reinvested profits should be exempt from taxation. from exempt be should profits Reinvested Q32

0.966** 0.245 0.309 18.369 0.02 -0.194

(0.375) (0.405) (0.493) (0.032) (0.331) (0.384)

Q31 The CIT burden for SMEs should be reduced. be should SMEs for burden CIT The Q31

0.525 -0.433 0.249 19.723 -0.297 1.068***

(0.342) (0.377) (0.487) (0.111) (0.299) (0.324)

Q30 The CIT (general) rate should be reduced. be should rate (general) CIT The Q30

0.393 0.186 0.396 15.61 -0.310 0.621*

tax).

(0.38) (0.426) (0.604) (0.526) (0.338) (0.384)

statutory rates, without allowing the lower withholding tax to be the final final the be to tax withholding lower the allowing without rates, statutory

-0.644* -0.044 0.233 9.065 0.614* -0.408

All sources of income inside PIT should be taxed in the same way (at (at way same the in taxed be should PIT inside income of sources All Q27

(0.395) (0.426) (0.632) (<0.001) (0.427) (0.434)

Q26 Inside PIT, interest on saving and securities should be taxed. be should securities and saving on interest PIT, Inside Q26

-1.588*** 0.111 -0.072 -0.04 34.057 1.709***

(0.752) (0.406) (0.444) (0.766) (0.002) (0.367)

Q25 Inside PIT, financial capital gains should be taxed. be should gains capital financial PIT, Inside Q25

-0.066 -0.802** 0.305 -2.005*** 27.245 1.289***

(0.413) (0.44) (0.622) (0.003) (0.363)

Q24 Inside PIT, dividends should be taxed. be should dividends PIT, Inside Q24

-0.836** 0.593 -1.120* 24.869 0.987***

along with the maintenance of personal exemptions. personal of maintenance the with along (0.63) (0.357) (0.361) (0.387) (0.096) (0.316)

1.203* 0.797** 0.059 -0.280 16.127 -0.079 Instead of more PIT rates only one rate should be introduced (a flat tax) tax) flat (a introduced be should rate one only rates PIT more of Instead Q16

financial property, etc.), i.e. synthetic taxation of property (net wealth tax). wealth (net property of taxation synthetic i.e. etc.), property, financial (0.587) (0.342) (0.379) (0.424) (0.026) (0.308)

-0.762 -0.409 0.658* -0.411 20.325 0.628** Taxation should include other forms of property too (movable property, property, (movable too property of forms other include should Taxation Q03

(0.530) (0.359) (0.381) (0.396) (0.001) (0.326)

Q01 Croatia should introduce the proposed real estate tax. estate real proposed the introduce should Croatia Q01

-0.777 -0.273 0.661* -0.472 30.322 1.333***

Q84 Q79 Q86 Q85 Q80

a d c b e

Question/statement χ

2 f 2 Behavioral responsiveness Behavioral Incidence

Binomial probit regression results for economic views economic for results regression probit Binomial

4 4 T able

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 420 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

421 38 (4) 405-439 (2014)

Source: Authors’ calculation. Authors’ Source:

tests the hypothesis that at least one of the regression coefficients is not equal to zero. to equal not is coefficients regression the of one least at that hypothesis the tests χ Wald f)

e) Q80 – Tax burden should be shifted from personal and corporate income to property. to income corporate and personal from shifted be should burden Tax – Q80 e)

d) Q79 – Tax burden should be shifted from personal and corporate income to consumption. to income corporate and personal from shifted be should burden Tax – Q79 d)

c) Q86 – Different government tax reductions (reliefs, incentives) promote economic growth. growth. economic promote incentives) (reliefs, reductions tax government Different – Q86 c)

b) Q85 – Non taxation of financial capital gains encourages investment and promotes economic growth. economic promotes and investment encourages gains capital financial of taxation Non – Q85 b)

a) Q84 – Non taxation of interest encourages saving. encourages interest of taxation Non – Q84 a)

* p < 0.1; ** p < 0.05; *** p < 0.01. < p *** 0.05; < p ** 0.1; < p *

Omitted variable dropped from the estimation because model predicts success perfectly. success predicts model because estimation the from dropped variable Omitted

Notes: Robust standard errors are in parenthesis. The p-values of the the of p-values The parenthesis. in are errors standard Robust Notes: are in brackets. Other regressors include indicators of sector of employment, age and education. education. and age employment, of sector of indicators include regressors Other brackets. in are χ

2 2

(0.663) (0.581) (0.862) (<0.001) (0.515)

Q81 Para-fiscal levies should be reduced. be should levies Para-fiscal Q81

0.309 1.562*** 0.051 163.172 0.545

different non-tax revenues (with emphasis of different user charges). user different of emphasis (with revenues non-tax different (0.471) (0.348) (0.338) (0.374) (0.792) (0.309)

0.146 0.054 0.481 -0.087 6.269 -0.046 General government should be financed less from taxes and more from from more and taxes from less financed be should government General Q76

(0.653) (0.423) (0.445) (0.500) (<0.001) (0.375)

Q74 A financial activities tax should be introduced. be should tax activities financial A Q74

-0.971* 0.168 -0.003 0.427 0.150 43.793

(0.569) (0.424) (0.361) (0.380) (0.343) (0.006)

Q73 A financial transaction tax should be introduced. be should tax transaction financial A Q73

-0.441 -0.009 0.330 0.857** -0.135 24.79

narrowed/eliminated). (0.528) (0.381) (0.328) (0.360) (0.308) (0.075)

Only one/standard VAT rate should be aimed at (reduced rates should be be should rates (reduced at aimed be should rate VAT one/standard Only Q42 0.565 0.429 -0.882** 0.060 0.902*** 16.966

Q85 Q84 Q86 Q80 Q79

b a c e d

Question/statement χ

2 f 2 Behavioral responsiveness Behavioral Incidence

------15 point to the experts’ attitudes The tax burden should be shifted shifted be should burden tax The and Q80 – Q80 and – The should tax be burden personal shifted from ) turned out to be the most important The predictor. experts that re The tax burden should be shifted from personal and corporate income to Tax burden should burden be shifted personal from Tax and corporate income to prop ) also turned out to be important predictor. The experts that answered this In contrast to behavioral questions/statements, the comparison with US survey results is not possible here question (more than one quarter). 15 since the Croatian research entails other predictor questions that are more applicable to the Croatian tax sys tem characteristics. (non)-taxation of capital incomes (Q24, Q25 and Q26) – the instruments that were that instruments the – Q26) and Q25 (Q24, incomes capital of (non)-taxation crucial for the consumption-based interest-adjusted personal income tax not only in the same period, but also The even fact ACE, further. that unlike non-taxation of capital incomes non-taxation, has not been in effect since 2001, i.e. that it is almost forgotten, could be the main reason behind the lack positive) reactions of to that consistent instrument as (and well as a lot of neutral answers for this relatively precisely, neither of them turned out relatively to precisely, be significant (and positive) for This ACE is tax). about an instrument Q40 that (reintroduction was of crucial for im Croatia in taxation income corporate interest-adjusted consumption-based the the for significant are predictors both hand, other the On 1994-2000. in plemented and corporate income to consumption to income corporate and from personal and corporate income to property) as well as of taxing all income sources in the same way (classical comprehensive financial proposed a of favor in also are they that surprisingly Not income). S-H-S transaction tax. Although both predictors (Q79 Q80 ( erty in logically, are, negatively) answered that those to (compared positively question favor of real estate tax as well as net wealth tax. But they are also more inclined to income-based taxation (in contrast to consumption-based of the former group) gains) capital and dividends (interest, taxation income capital of favor in are they – capital incomes, flat rate tax are andVAT against only retaining one specific tax “distor not and effects “neutral” and horizontal general prefer they So, incentives. tive” tax incentives. Not surprisingly, these Croatia incentives abandoned consumption-based taxation at were personal and corporate introduced levels after (table 1). terest and capital gains) and are in favor of flat tax introduction, only one (stand rate as ard) well VAT as a reduction of the tax burden for SMEs. These experts follow contemporary tax policy recommendations and consumption-based (inter est-adjusted) tax concept in general. Those experts are very precise in their atti tudes and the answers are in accordance with expectations at most tested models. Again, it is not surprising that the experts that favor a general non-taxation of Economic Economic incidence results show relatively consistent attitudes of tax experts. Q79 ( consumption sponded to that question positively (compared to those that answered negatively) not are, in expectedly, favor of capital income taxation in general (dividends, in

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 422 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

423 38 (4) 405-439 (2014)

------us as possible. CONCLUSION consistent with the consumption-based versus income-based concepts. consistent with the consumption-based Some values and economic views are found to be important and consistent predic consistent and important be to found are views economic and values Some tors of tax This opinions. is especially true of the equity principle, the behavioral effects of tax reductions and attitudes related to tax incidence. The results are tion as other sectors, but still not in favor of it (with the exception of the ACE tax ACE the of exception the (with it of favor in not still but sectors, other as tion that received substantial support). come tax deductions, maybe due to their high administrative costs, which burden “ra more be to said be could sector academic The directly. administration tax the tional” being not so much against a consumption-based (interest-adjusted) taxa ity (equity principle) and a stronger inclination to the classical ability additional income-based as property the – in also reflected is (which principle pay to ability to pay indicator). However government officers are not in favor of personal in efficiency trade-off in favor of equity. efficiency trade-off In a sectoral comparison, the government sector expresses higher social sensibil to consumption as well as decrease of the share of as taxation expected, in GDP, is advocated. Experts showed remarkable belief in behavioral responsiveness of tax decreases/exemptions, but, on the other hand, solved the traditional equity- alcohol and tobacco Although duties. experts support financial sector taxation in general, consensus was reached not about a financial transaction tax, but about a financial activities tax. Concerning general tax issues a further shift from income tions), and rejection of a flat tax as well as a decrease in number of tax brackets. Concerning consumption taxation, the most interesting results are in favor of the rates as well as an increase maintenance in and even broadening of reduced VAT tions enables us to draw some general conclusions about experts’ attitudes. In the tions enables us to draw some general conclusions about experts’ field of (personal and corporate) income taxation they include maintenancecorporate of tax incentives, reintroduction of personal income tax reliefs (deduc neutral answers, yes or no answers only) implies as high a consens only) implies yes or no answers neutral answers, ques specific some concerning of consensus high degree relatively the However, 5 consensus broad and high no is there unexpectedly, not but disappointingly, Maybe of Croatian tax experts although the technique which was applied (elimination of 9.6 1.8 4.4 1.6 8.7 4.6 7.3 11.2 31.7 43.5 46.9 50.0 16.7 20.8 12.7 48.7 41.6 86.2 12.2 23.1 18.3 26.0 24.0 17.2 46.7 19.4 16.7 45.2 Valid percent Valid A1

Management/entrepreneurship Law Political sciences Public finance Monetary finance and financial markets Corporate finance and accounting Macroeconomics Local and regional units Administration Tax Administration) Tax Ministry of Finance (outside Others Economics Government sector Academic community advisor Tax Editor and/or business advisor Others High business school (lecturer) High school degree Associate degree/ BA Graduate/Master MSc PhD Private sector 18-29 30-44 45-54 55+ able Sector: Academic community – Economics Academic Sector: Sector: Government sector community Academic Sector: Sector: Private sector Sector Structure of respondents Structure Age Education Source: Authors – survey. Source: APPENDIX T and sample information Demographics

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 424 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

425 38 (4) 405-439 (2014) 92 77 52 29 32 52 32 32 18 57 54 61 84 50 Yes Private 8 23 48 71 68 48 68 68 82 43 46 39 16 50 No 86 83 43 50 54 67 29 65 12 39 51 63 79 61 Yes 14 17 57 50 46 33 71 35 88 61 49 37 21 39 Government No 80 86 51 58 66 70 25 62 13 46 48 53 82 50 Yes Academic 52 20 14 49 30 75 38 87 54 47 18 50 42 34 No 49 84 83 48 67 29 60 12 44 59 82 56 52 57 Yes Total 51 16 17 52 33 71 40 88 56 41 18 44 48 43 No A2

income. rate should be The highest PIT reduced further (recently reduced from 45% to 40%). (in contrast to the current 5% with the exemption for the closest family members). Real estate transfers should be taxed. Property is a necessary additional indicator of ability to pay besides Residents should be taxed at a higher rate than business. Inheritances and gifts should be taxed. Inheritance and gift taxation should be progressive – according to the property inherited/gifted and the proximity of the relationship income tax should still remain local revenue too. Real estate tax should be assessed at the same rate for business and residents. Business should be taxed at a higher rate than residents. revenue. Regardless of any possible real estate tax introduction, tax on holiday houses should remain local revenue too. Regardless of any possible real estate tax introduction, surtax on Taxation should include other should include other Taxation forms of property too (movable etc.), financial property, property, taxation i.e. should be a synthetic of property (net wealth tax). real Regardless of any possible estate tax introduction, communal should still remain local charge Croatia should introduce the Croatia should introduce proposed real estate tax. a local Real estate tax should be tax. Statement/question Personal income tax Property taxes, inheritance and taxes, inheritance Property gift taxes 8 9 7 6 5 4 3 2 1 able 11 13 12 10 14 No. T distribution (in %) Responses’ for all and respondents main to according groups answer) (without neutral employment 75 85 36 64 43 62 45 45 71 64 63 68 52 61 14 54 30 54 21 Yes Private 15 36 25 64 38 55 57 55 38 29 32 36 39 48 46 70 86 79 46 No 65 88 52 83 39 20 54 64 86 87 62 53 58 65 73 17 28 51 71 Yes 12 35 17 48 80 61 36 13 46 38 14 42 35 47 27 49 83 29 72 Government No 71 93 59 79 39 72 40 58 66 70 65 66 71 77 23 77 37 59 64 Yes 7 Academic 29 21 41 28 42 61 60 35 34 29 30 34 23 23 77 63 41 36 No 68 79 88 54 57 57 30 77 46 73 65 65 60 70 73 53 19 31 66 Yes Total 32 21 12 46 43 70 43 23 54 27 35 35 40 27 30 47 81 69 34 No

Tax incentives for areas of special Tax national concern should be maintained. Reinvested profits should be exempt from taxation. CIT burden for SMEs should be CIT reduced. CIT (general) rate should be CIT reduced. the economic double taxation of dividends). Dividends should be taxed at lower at Dividends should be taxed rates than other incomes (due to should be taxed in the same way (at statutory rates, without allowing the lower withholding tax to be the final tax due). Capital incomes should be taxed at lower rates than labor incomes. All sources of income inside PIT All sources of income inside PIT Inside PIT interest on saving and Inside PIT securities should be taxed. Inside PIT, dividends should be dividends Inside PIT, taxed. gains financial capital Inside PIT, should be taxed. Tax deductions/allowances for Tax voluntary pension insurance should be reintroduced. deductions/allowances for Tax additional and private health insurance should be reintroduced. Tax deductions/allowances for life deductions/allowances for Tax insurance should be reintroduced. Tax deductions/allowances for deductions/allowances for Tax health costs should be reintroduced. deductions/allowances for Tax should housing owner-occupied be reintroduced. be decreased (currently three). The number of tax brackets should The number of tax brackets be increased (currently three). should The number of tax brackets Instead of more PIT rates only one PIT Instead of more introduced (a flat rate should be tax) along with maintaining personal exemption. Statement/question rate should be The lowest PIT (recently reduced reduced further 12%). from 15% to Corporate income tax 33 32 30 31 29 28 27 26 24 25 23 21 22 20 19 18 16 17 No. 15

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 426 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

427 38 (4) 405-439 (2014) 0 64 22 74 61 38 64 61 80 74 63 59 85 72 84 83 86 88 Yes Private 36 78 26 39 62 36 39 20 26 37 41 15 28 16 17 14 13 No 100 2 75 42 76 72 37 82 43 92 73 37 65 69 68 79 92 90 88 Yes 8 8 25 58 24 28 63 18 57 27 98 63 35 31 32 21 10 12 Government No 3 74 42 73 80 35 72 52 83 80 33 61 66 73 77 92 94 91 Yes 8 6 9 Academic 97 67 39 26 58 65 28 48 17 20 27 20 34 27 23 No 3 38 64 73 40 36 75 49 87 75 91 91 89 75 74 68 69 77 Yes Total 9 9 11 97 62 36 27 60 64 25 51 13 25 25 26 32 31 23 No not be applied for “the yellow press”. rate should be VAT The reduced higher for scientific journals than for the daily press. introduction of “crises tax”. rates for VAT Instead of reduced the some “basic” foodstuffs rate for all foodstuffs VAT reduced (and water) should be introduced. rate for VAT The reduced newspapers and periodicals should should be taxed at a reduced VAT VAT should be taxed at a reduced rate. for VAT special scheme for A farmers should be introduced. rate should VAT Standard/general be increased. standard/general the of increase An rate is better than the VAT tried to maintain zero rate of VAT VAT tried to maintain zero rate of for some goods and services that have a social purpose. and restaurant services Tourist rate. VAT should be taxed at lower milk, (bread, Some basic foodstuff baby food, edible oils and fats) depreciation rates) should be maintained. rate should VAT Only one/standard be aimed at (reduced rates should be narrowed/eliminated). In the transitional period (after accessing EU) Croatia should have maintained. incentives for investment Tax should be maintained. for Protective interest (allowance ACE) should be corporate equity, reintroduced. (double Accelerated depreciation should be maintained. the city of incentives for Tax should be maintained. Vukovar R&D incentives (state aid) for Tax should be maintained the incentives (state aid) for Tax should be education of employees Statement/question mountain areas incentives for Tax should be maintained. free trade zones incentives for Tax VAT 51 50 49 48 46 47 45 44 43 42 41 39 40 38 36 37 34 35 No. 5 11 67 70 29 76 95 58 55 60 19 45 35 30 24 67 45 53 68 82 Yes 5 Private 33 30 71 24 42 45 40 81 55 65 70 76 33 55 47 32 89 95 18 No 9 2 52 56 41 85 91 84 63 85 40 42 26 63 28 59 65 66 79 82 Yes 9 48 44 59 15 16 37 15 60 58 74 37 72 41 35 34 21 91 98 18 Government No 9 66 60 42 89 94 81 68 76 45 50 35 56 30 61 57 71 67 10 82 Yes 6 11 34 40 58 19 32 24 55 50 65 44 70 39 43 29 33 91 90 18 Academic No 9 6 60 59 40 85 93 80 64 78 41 45 32 57 28 61 60 66 73 82 Yes Total 7 72 39 40 41 20 36 22 59 55 68 43 27 91 94 18 60 15 40 34 No

st . mineral oil and

pillar) should be nd increased. Health insurance contributions should be decreased. Rates for compulsory pension insurance contributions for (1 solidarity intergenerational pillar) should be decreased. Rates for compulsory pension insurance contributions for individual capitalized savings accounts (2 non-alcoholic beverages. The ceiling for pension insurance contributions should be abolished. Minimum assessment base for pension insurance contributions should be abolished. Excise duties should be levied on aircrafts and vessels. Excise duties should be levied on liability and comprehensive road vehicle insurance premiums Excise duties should be levied on coffee. Excise duties should be levied on tobacco products should be increased. Croatia has enough excise duties. Excise duties should be levied on luxury products. Excise duties should be levied on cars and other vehicles. Excise duties on electricity should Excise duties on electricity be increased. should Excise duties on alcohol be increased. be Excise duties on wine should introduced. and Excise duties on tobacco A special tax on “junk food” special A should be introduced. Excise taxes on be petroleum products should decreased. gas should Excise duties on natural be increased. Statement/question partially revenues should be VAT government. directed to local Social contributions Excise duties 71 69 70 66 67 68 63 64 65 59 60 61 62 56 57 58 53 54 55 No. 52

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 428 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

429 38 (4) 405-439 (2014) 83 41 67 63 91 65 29 96 79 69 86 76 57 47 47 95 Yes 100 9 0 4 5 Private 17 59 33 37 35 71 21 31 14 24 43 53 53 No 76 58 72 62 84 93 66 55 97 82 63 76 63 49 64 94 85 Yes 8 3 6 24 42 28 38 16 34 45 18 37 24 37 51 36 15 Government No 81 67 77 67 77 89 69 53 93 82 66 78 66 57 50 67 83 Yes 7 11 34 22 34 19 33 23 23 31 47 18 50 33 17 33 43 Academic No 65 78 65 79 60 74 82 92 67 52 95 81 56 77 85 65 53 Yes Total 8 5 35 22 35 21 40 26 18 33 48 19 44 23 15 35 47 No

promote economic growth. is regressive. VAT is mostly shifted onto CIT consumers and employees. Non taxation of interest encourages saving. Non taxation of financial capital gains encourages investment and promotes economic growth. government tax Different reductions (reliefs, incentives) reduced. rates income tax Lower marginal reduce leisure and increase work effort. rates income tax Lower marginal and taxable increase work effort income generally so much as to raise revenue. The tax burden should be shifted from personal and corporate income to consumption. The tax burden should be shifted from personal and corporate income to property. Para-fiscal levies should be (with an emphasis on different user (with an emphasis on different charges). The entire level of public revenues (and public expenditures) relative should be lowered. to GDP The tax structure should be changed. A financial activities tax should financial activities A be introduced. level of The entire tax burden (the be taxes relative to GDP) should reduced. be General government should and more financed less from taxes non-tax revenues from different income taxpayers concerning income taxpayers social security compulsory payment. contributions’ tax should financial transaction A be introduced. Statement/question personal income Small business in a favorable taxpayers are to employment position compared General tax issues, experts’ General tax issues, experts’ values and economic model 88 86 87 85 83 84 82 81 80 78 79 77 76 75 73 74 72 No. 71 42 95 60 Yes 5 Private 29 58 40 No 88 49 95 94 Yes 5 6 12 51 Government No 89 32 91 85 Yes 9 11 68 15 Academic No 87 41 94 87 Yes Total 6 13 13 59 No

The equity principle should have The equity principle should priority over the efficiency policy. principle in creating tax should Penalties for tax evasion be increased. investment attraction. and compliance Administrative a play costs of taxation should tax significant role in creating be policy (these costs should system reduced by making the tax significantly simpler). Statement/question incentives (city of Regional tax areas of special national Vukovar, efficient concerning concern) are 91 92 90 No. 89 Note: Answers above 61% are bolded. above 61% are Answers Note: Authors – survey. Source:

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 430 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

431 38 (4) 405-439 (2014)

taxation. (0.012) (0.525) (0.475) (0.412) (0.428) (0.659) (0.544) (0.392)

0.004 0.534 0.012 -0.141 0.129 5.012 -0.130 0.613 Reinvested profits should be exempt from from exempt be should profits Reinvested Q32

(0.012) (0.460) (0.514) (0.394) (0.359) (0.042) (0.558) (0.418)

Q31 CIT burden for SMEs should be reduced. be should SMEs for burden CIT Q31

-0.018 0.781* 0.596 0.047 0.810** 14.573 -0.184 0.501

(0.011) (0.412) (0.409) (0.328) (0.350) (0.179) (0.455) (0.341)

Q30 CIT (general) rate should be reduced. be should rate (general) CIT Q30

0.010 0.723* 0.133 0.067 0.841** 10.177 -0.579 0.210

final tax due). tax final

allowing for the lower withholding tax to be the the be to tax withholding lower the for allowing (0.011) (0.459) (0.481) (0.358) (0.421) (0.841) (0.503) (0.361)

in the same way (at statutory rates, without without rates, statutory (at way same the in 0.009 0.350 0.231 -0.048 -0.519 3.443 0.028 -0.075

All sources of income inside PIT should be taxed taxed be should PIT inside income of sources All Q27

should be taxed. be should (0.011) (0.415) (0.413) (0.345) (0.362) (0.354) (0.477) (0.363)

-0.011 0.485 -0.782** -0.216 0.008 -0.301 7.758 0.090 Inside PIT, interest on saving and securities securities and saving on interest PIT, Inside Q26

taxed. (0.453) (0.332) (0.392) (0.414) (0.013) (0.412) (0.006) (0.534)

0.387 0.843** -0.264 0.567 0.012 -0.586 19.636 0.356 Inside PIT, financial capital gains should be be should gains capital financial PIT, Inside Q25

(0.448) (0.353) (0.454) (0.398) (0.012) (0.418) (0.010) (0.535)

Q24 Inside PIT, dividends should be taxed. be should dividends PIT, Inside Q24

0.702 0.740** -0.577 0.390 0.014 -0.240 18.562 0.190

maintenance of personal exemption. personal of maintenance

(0.490) (0.345) (0.341) (0.331) (0.011) (0.481) (0.269) (0.456)

be introduced (a flat tax) along with the the with along tax) flat (a introduced be

0.079 -0.672* 0.206 -0.257 -0.004 0.356 8.783 0.065

Instead of more PIT rates only one rate should should rate one only rates PIT more of Instead Q16

i.e. synthetic taxation of property (net wealth tax). wealth (net property of taxation synthetic i.e.

(0.404) (0.320) (0.343) (0.339) (0.010) (0.402) (0.764) (0.450)

too (movable property, financial property, etc.), etc.), property, financial property, (movable too

0.140 0.179 0.223 -0.149 0.009 -0.030 4.136 -0.275

Taxation should include other forms of property property of forms other include should Taxation Q03

tax. (0.401) (0.337) (0.324) (0.329) (0.011) (0.410) (0.041) (0.436)

Croatia should introduce the proposed real estate estate real proposed the introduce should Croatia Q01 0.014 0.820** -0.432 -0.456 -0.007 -0.431 0.171 14.658

MSc/PhD Master

Question/statement Q75 Q91 Academic Public Age χ

b a 2 e 2 Level 7 Level Level 8.1-8.2 Level

Sector Education

c d

Binomial probit regression results for values, detailed detailed values, for results regression probit Binomial

3 3 A T able

Source: Authors’ calculation. Authors’ Source:

tests the hypothesis that at least one of the regression coefficients is not equal to zero. to equal not is coefficients regression the of one least at that hypothesis the tests χ Wald e)

d) Reference category is Level 4.2-6 according to Croatian Qualification Framework (high school – bachelor). bachelor). – school (high Framework Qualification Croatian to according 4.2-6 Level is category Reference d)

c) Reference category is private sector. private is category Reference c)

b) Q91 – The equity principle should be prior to efficiency principle in cr in principle efficiency to prior be should principle equity The – Q91 b) eating tax policy. tax eating

a) Q75 – Entire tax burden (the level of taxes relative the GDP) should be reduced. be should GDP) the relative taxes of level (the burden tax Entire – Q75 a)

* p < 0.1; ** p < 0.05; *** p < 0.01. < p *** 0.05; < p ** 0.1; < p *

Omitted variable dropped from the estimation because model predicts success perfectly. success predicts model because estimation the from dropped variable Omitted

Notes: Robust standard errors are in parenthesis. The p-values of the of p-values The parenthesis. in are errors standard Robust Notes: are in brackets. Other regressors include indicators of sector of employment, age and education. and age employment, of sector of indicators include regressors Other brackets. in are χ

2 2

(0.02) (0.669) (0.802) (0.526) (0.447) (0.006) (0.766) (0.626)

Q81Para-fiscal levies should be reduced. be should levies Q81Para-fiscal

0.034* 0.066 0.531 0.288 0.893** 19.89 0.096 0.187

charges).

revenues (with an emphasis on different user user different on emphasis an (with revenues (0.011) (0.456) (0.466) (0.364) (0.328) (0.096) (0.473) (0.355)

from taxes and more from different non-tax non-tax different from more and taxes from -0.202 0.327 0.955*** -0.436 0.001 0.266 12.132 -0.772

General government should be financed less less financed be should government General Q76

(0.539) (0.386) (0.482) (0.558) (0.015) (0.5) (<0.001) (0.716)

Q74 A financial activities tax should be introduced. be should tax activities financial A Q74

1.600*** 1.378*** -0.486 0.653 0.018 0.313 65.922 -0.206

(0.432) (0.360) (0.342) (0.342) (0.011) (0.440) (0.030) (0.436)

Q73 A financial transaction tax should be introduced. be should tax transaction financial A Q73

0.419 0.752** -0.167 0.792** 0.015 -0.203 15.518 0.722*

(reduced rates should be narrowed/eliminated). be should rates (reduced (0.394) (0.314) (0.324) (0.318) (0.01) (0.413) (0.543) (0.432)

0.192 -0.475 0.031 -0.283 0.004 -0.014 5.973 0.147 Only one/standard VAT rate should be aimed at at aimed be should rate VAT one/standard Only Q42

equity, ACE) should be reintroduced. be should ACE) equity, (0.610) (0.372) (0.408) (0.411) (0.011) (0.538) (0.242) (0.528)

-0.690 0.580 -0.306 -0.052 -0.003 -0.094 9.150 -0.865 Protective interest (allowance for corporate corporate for (allowance interest Protective Q40

maintained. (0.598) (0.466) (0.430) (0.016) (0.408) (0.616)

Tax incentives for investment should be be should investment for incentives Tax Q39 -0.966 0.741 0.279 -0.013 5.067 -0.939

MSc/PhD Master

Question/statement Q75 Q91 Academic Public Age χ

b a 2 e 2 Level 7 Level Level 8.1-8.2 Level

Sector Education

c d

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 432 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

433 38 (4) 405-439 (2014)

be taxed. be

(0.578) (0.634) (0.363) (0.413) (0.44) (0.622) (0.003) (0.677) (0.505) (0.014)

dividends should should dividends

-0.428 0.342 0.987*** -0.836** 0.593 -1.120* 24.869 -0.538 0.244 0.006

Inside PIT, PIT, Inside Q24

exemption.

personal personal

maintenance of of maintenance

tax) along with the the with along tax) (0.525) (0.516) (0.316) (0.357) (0.361) (0.387) (0.630) (0.096) (0.554) (0.414) (0.014)

introduced (a flat flat (a introduced -0.111 0.364 -0.079 0.797** 0.059 -0.280 1.203* 16.127 0.831 0.039 -0.022

should be be should

rates only one rate rate one only rates

Instead of more PIT PIT more of Instead Q16

(net wealth tax). wealth (net

taxation of property property of taxation

etc.), i.e. synthetic synthetic i.e. etc.),

(0.424) (0.587) property, financial (0.308) (0.342) (0.379) (0.459) (0.013) (0.490) (0.527) (0.026) (0.602)

-0.411 -0.762 property, (movable 0.628** -0.409 0.658* -0.288 0.027** -0.573 -0.806 20.325 -0.510

of property too too property of

include other forms forms other include

Taxation should should Taxation Q03

tax.

(0.396) (0.530) estate real proposed (0.326) (0.359) (0.381) (0.474) (0.015) (0.528) (0.527) (0.001) (0.580)

-0.472 -0.777 the introduce 1.333*** -0.273 0.661* 0.296 0.005 -0.035 0.420 30.322 0.411

Croatia should should Croatia Q01

MSc/PhD

Master

Question/statement Q84 Q86 Q85 Q80 Q79 Public Age Academic 8.1-8.2 χ

a c b d e 2 h 2

Level 7 Level

Level Level

Behavioral responsiveness Behavioral Incidence Sector Education

f g

Binomial probit regression results for economic views, detailed views, economic for results regression probit Binomial

4 4 A T able

from taxation. from

(0.614) (0.579) (0.354) (0.352) (0.383) (0.386) (0.489) (0.049) (0.630) (0.461) (0.017)

should be exempt exempt be should

1.002 0.540 0.020 -0.194 0.966** 0.245 0.309 18.369 0.324 0.809* 0.016

Reinvested profits profits Reinvested Q32

reduced.

(0.684) (0.64) (0.331) (0.384) (0.375) (0.45) (0.493) (0.032) (0.669) (0.447) (0.018)

SMEs should be be should SMEs

0.298 0.878 -0.297 1.068*** 0.525 -0.433 0.249 19.723 0.970 0.792* -0.022

CIT burden for for burden CIT Q31

should be reduced. be should (0.54) (0.552) (0.299) (0.324) (0.342) (0.377) (0.487) (0.111) (0.571) (0.415) (0.013)

0.101 0.422 -0.310 0.621* 0.393 0.186 0.396 15.610 0.560 0.400 -0.014 CIT (general) rate rate (general) CIT Q30

due).

be the final tax tax final the be

withholding tax to to tax withholding

the lower lower the

without allowing allowing without (0.513) (0.559) (0.338) (0.384) (0.38) (0.426) (0.604) (0.526) (0.593) (0.439) (0.013)

statutory rates, rates, statutory -0.111 -0.532 0.614* -0.408 -0.644* -0.044 0.233 9.065 -0.477 -0.312 -0.006

the same way (at (at way same the

should be taxed in in taxed be should

income inside PIT PIT inside income

All sources of of sources All Q27

taxed.

(0.426) (0.632) be should securities (0.427) (0.434) (0.395) (0.515) (0.016) (0.582) (0.58) (<0.001) (0.709)

-0.072 -0.040 and savings on 1.709*** -1.588*** 0.111 -0.554 -0.001 -0.843 -1.496*** 34.057 -1.084

Inside PIT, interest interest PIT, Inside Q26

be taxed. be

(0.766) (0.752) (0.367) (0.406) (0.444) (0.499) (0.014) (0.61) (0.656) (0.002) (0.651)

capital gains should should gains capital

-2.005*** -0.066 1.289*** -0.802** 0.305 0.485 0.002 -0.875 0.184 27.245 -0.076

Inside PIT, financial financial PIT, Inside Q25

MSc/PhD

Master

8.1-8.2 χ Question/statement Q84 Q86 Q85 Q80 Q79 Public Age Academic

2 h 2 a c b d e

Level 7 Level

Level Level

Behavioral responsiveness Behavioral Incidence Sector Education

f g

financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey 38 (4) 405-439 (2014) 434 financial theory and hrvoje šimović, helena blažić, ana štambuk: practice perspectives of tax reforms in croatia: expert opinion survey

435 38 (4) 405-439 (2014)

be introduced. be

(0.718) (0.715) (0.375) (0.423) (0.445) (0.500) (0.653) (<0.001) (0.684) (0.546) (0.017)

activities tax should should tax activities

1.909*** 3.411*** 0.427 0.150 -0.003 -0.971* 0.168 43.793 0.107 1.174** 0.037**

A financial financial A Q74

introduced.

should be be should (0.563) (0.546) (0.343) (0.361) (0.380) (0.424) (0.569) (0.006) (0.596) (0.465) (0.014)

transaction tax tax transaction 0.101 1.193** 0.857** -0.135 0.330 -0.441 -0.009 24.790 1.087* 0.985** 0.035**

A financial financial A Q73

eliminated).

narrowed/

(0.381) (0.528) be should rates (0.308) (0.328) (0.36) (0.469) (0.015) (0.527) (0.566) (0.075) (0.618)

0.565 0.429 (reduced at aimed 0.060 0.902*** -0.882** 0.332 <0.001 -0.771 -0.239 16.966 0.720

VAT rate should be be should rate VAT

Only one/standard one/standard Only Q42

reintroduced.

ACE) should be be should ACE)

(0.43) (0.629) (0.364) (0.394) (0.41) (0.498) (0.015) (0.599) (0.643) (0.950) (0.628)

corporate equity, equity, corporate

0.074 -0.149 -0.353 -0.261 0.307 -0.044 0.020 0.316 -0.211 3.929 -0.484

(allowance for for (allowance

Protective interest interest Protective Q40

be maintained. be

(0.672) (0.571) (0.593) (0.423) (0.777) (0.979) (0.019) (0.748) (0.784) (0.149)

investment should should investment

0.582 1.194** -1.243** -0.466 -1.542** 1.527 0.012 2.015*** -0.454 13.310

Tax incentives for for incentives Tax Q39

MSc/PhD

Master

Question/statement Q84 Q86 Q85 Q80 Q79 Public Age Academic 8.1-8.2 χ

a c b d e 2 h 2

Level 7 Level

Level Level

Behavioral responsiveness Behavioral Incidence Sector Education

f g

Source: Authors’ calculation. Authors’ Source:

tests the hypothesis that at least one of the regression coefficients is not equal to zero. to equal not is coefficients regression the of one least at that hypothesis the tests χ Wald h)

g) Reference category is Level 4.2-6 according to Croatian Qualification Framework (high school – bachelor). – school (high Framework Qualification Croatian to according 4.2-6 Level is category Reference g)

f) Reference category is private sector. private is category Reference f)

e) Q80 – Tax burden should be shifted from personal and corporate income to property. to income corporate and personal from shifted be should burden Tax – Q80 e)

d) Q79 – Tax burden should be shifted from personal and corporate income to consumption. to income corporate and personal from shifted be should burden Tax – Q79 d)

c) Q86 – Different government tax reductions (reliefs, incentives) promote economic growth. growth. economic promote incentives) (reliefs, reductions tax government Different – Q86 c)

b) Q85 – Non taxation of financial capital gains encourages investment and promotes economic growth. economic promotes and investment encourages gains capital financial of taxation Non – Q85 b)

a) Q84 – Non taxation of interest encourages saving. encourages interest of taxation Non – Q84 a)

* p < 0.1; ** p < 0.05; *** p < 0.01. < p *** 0.05; < p ** 0.1; < p *

Omitted variable dropped from the estimation because model predicts success perfectly. success predicts model because estimation the from dropped variable Omitted

2 2

(0.862) reduced. be should (0.515) (0.663) (0.581) (0.728) (0.028) (0.832) (<0.001) (1.331)

0.051 0.545 0.309 1.562*** 4.872*** 0.040 5.182*** 163.172 4.915*** Para-fiscal levies levies Para-fiscal Q81

charges).

on different user user different on

(with an emphasis emphasis an (with

non-tax revenues revenues non-tax

(0.374) (0.471) (0.309) (0.348) (0.338) (0.438) (0.015) (0.548) (0.601) (0.792) (0.624)