Long Term Effects of Property Tax: Case of Croatia
DOI:
https://doi.org/10.4335/14.3.637-653(2016)Keywords:
property tax, consumption, long-term effectsAbstract
Property tax in probably one of the most controversial taxes which were ever announced in Croatia's recent history. There was not a single tax or government measure which has occupied so much media and public discourse with the exception of the introduction of VAT. Most of the discussion regarding the new tax was focused on the actual fiscal impact of the new tax, how it will be calculated and what will be the overall fiscal impact. This paper however takes another approach and tries to determine the overall long term effects of the new tax in terms of the class separation and sociological impact this tax will have. Particular focus is paid on possible ghettoization of Croatia cities. The paper creates a model which investigates how the new tax affects the households long term consumption plans. If the households cannot adjust its consumption due to the new taxation it is forced to sell its property and move into lower value neighborhood. Over time this process leads to a large reclassification and regrouping of the households depending on their income. The paper also investigates how the introduction of the new tax will affect the educational system. Our model shows the new tax will have an adverse effect on the educational system and quality of education in Croatia.
References
Ministry of finance (2012) Real estate tax as a function of decreasing labor costs and financing of decentralized functions (Zagreb: Ministry of Finance).
Glaeser, E. L. (1996) The incentive effects of property taxes on local governments, Public choice, 89(1), pp. 93-111.
Johnson, E. B. & Walsh, R. (2009) The Effect of Property Taxes on Location Decisions: Evidence From the Market for Second Homes University of Colorado discussion papers in economics, Working Paper No. 07-12 (Boulder: University of Colorado).
Johnson, E. B. & Walsh, R. (2013) The effect of property taxes on vacation home growth rates: Evidence from Michigan, Regional Science and Urban Economics, 43(5), pp. 740-750.
Kukić N. & Švaljek S. (2012) Porez na nekretnine:osnovne značajke i rasprava o uvođenju u Hrvatsku, Privredna kretanja i ekonomska politika, 22(132), pp. 49 - 91.
Lovrinčević, V. (2011) Porez na nekretnine u EU-u i implikacije za Hrvatsku, Ekonomski vjesnik, 2, pp. 419 – 429.
Santini, G. (2007) Iluzija i stvarnost hrvatskog gospodarstva (Zagreb: Rifin).
Santini, G. (2009), Porezna reforma i hrvatska kriza (Zagreb: Rifin).
Švaljek, S. (2012) Realestate tax - questions without answers, Banka Magazine, December 2012.
Tica, J. (2011) Ekonomske posljedice politike sprječavanja pada cijene stanova, EFZG Working Papers Series 1106 (Zagreb: Faculty of Economics and Business, University of Zagreb).</span></p>
