On May 8, 2024 at the Institute of Public Finance the results of the scientific research project Impact of taxes and benefits on income distribution and economic efficiency – performed under the program “Research projects” of the Croatian Science Foundation – were presented.

Economists in the last forty years, especially in recent times, increasingly emphasise the importance of studying the issues of equity in the income distribution. It has become evident that economic analysis is not comprehensive enough if it does not deal with both economic efficiency and equity. Taxes and social benefits have a redistributive function, but at the same time they affect the allocation of production factors and final products and, therefore, affect efficiency. Accordingly, in designing and reforming taxes and social benefits it is necessary to consider both equity and efficiency.

The project’s purpose was twofold: the first was to improve the methodology of empirical analysis of the impact of taxes and social benefits on income distribution and economic efficiency, and the second was to conduct several empirical analyses of the impact of taxes and social benefits on income distribution and economic efficiency in Croatia. Analyses performed within the project included: estimating the levels and trends of income inequality; assessing the impact of direct and indirect taxes and social benefits on inequality, poverty and work incentives; assessing the optimal taxation of the highest incomes; estimating social preferences towards the redistribution of income.

Empirical research for Croatia offered results that are usable when considering the often-invoked reforms of the tax-benefit system. Thus, the completion of this project marks initial steps towards establishing a culture of public discourse on the desirability and adequacy of policies based on scientific findings.

The main findings and experiences gained during the research were presented. Project leader Ivica Urban outlined the main research objectives and achieved results. He also summarized the main conclusions from the part of the research concerning income inequality and poverty decompositions by income source. Martina Pezer spoke about reforms of child benefits, Ivica Rubil about adjustments of survey data using tax data, and Marko Ledić about optimal tax rates and social preferences regarding income redistribution. 

The research resulted in 16 scientific papers, 12 of which have already been published in journals and conference edited volumes, while the rest are in the process of publication. One of the most interesting findings of the research is the conclusion that standard indicators of income inequality in Croatia, based on survey data, underestimate income inequality, mainly because income from capital is poorly represented in survey data. Other important project results can be found in abstracts and papers available on the website of Croatian Research Information System.