Long Term Effects of Property Tax: Case of Croatia
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.
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