Intergovernmental Fiscal Relations - Potentials and Limitations for Financing of Local Development in Croatia

The major goal of this paper is to give an overview on the most important issues regarding intergovernmental fiscal relations and regional inequalities in Croatia. The first section will give a general background for analysis of intergovernmental fiscal relations. In order to achieve this, the present model of financing of the local and regional self-government units, the number and size of local and regional governments and distribution of functions and revenue sources among levels of government in Croatia will be presented. The second section will elaborate regional inequalities in Croatia measured by several indicators. The aim is to find out degree of correlation among intergovernmental finance system, especially the current grant and equalization system, and regional inequalities in Croatia. The paper will conclude with a summary of the strengths and weaknesses of the overall intergovernmental fiscal relations and regional inequalities. This last section will offer several recommendations aiming at the improvement of intergovernmental finance and reduction of regional inequalities in Croatia.