THE ROLE OF THE TAX SYSTEM AND SOCIAL SECURITY TRANSFERS IN REDUCING INCOME INEQUALITY: THE CASE OF THE REPUBLIC OF CROATIA

The purpose and research objective of this paper are to provide an insight into the role and efficiency of the tax system and social security transfers in reducing income inequality in Croatia. The conception of analysis is based on the explanation of the tax system, pension insurance and the welfare system in Croatia and a comparison of these systems to similar ones in other EU member-states. The main finding is that the system of social security transfers in Croatia is efficient enough but there is still a need to improve its impact. The underlying ideas of this research are manifold. Firstly, the idea of this research is that by using exiting previous surveys and available data, one can compare the effect of the tax and social policies in Croatia. Secondly, by dividing the government effort into taxation and transfer payment, this research contributes to a better understanding of the effect of each specific policy. Thirdly, the discussion in the paper of the optimal policy is used to help examine the effect of the government actions, which is an important step in the amelioration of the government policies.