Tax Reform in Transition Economies: Experiences from the Croatian Tax Reform Process of the 1990s

Abstract

Economies in the process of transition from centrally planned to market-oriented all suffer heavily from a lack of real capital — concerning both fixed assets in business and human capital in the labour force. The success of the transformation process crucially depends on overcoming this deficiency. In order to maximize the prospects for increasing real capital, one has to focus on the main sources of capital from domestic investment and to attract capital from the developed Western countries. To this end, the tax system has to exhibit the following important properties: it has to guarantee that the cost of capital is protected from being taxed and it has to be attractive from a foreign investor’s point of view.

The research on which this chapter is based has been supported by the Deutsche für Schungsgemeinschaft. We are grateful to Clive Bell, Mike Browne, Armin Schmutzler and George Zodrow for comments on an earlier draft of this chapter. Two referees provided useful suggestions.