Croatia Subnational Public Finance Review

Contents Acknowledgments.........................................................................................................................................6Acronyms......................................................................................................................................................7Executive summary.......................................................................................................................................8Chapter 1. Local and regional government in Croatia–an overview.........................................................111.1.Overview of the territorial organization and main functions.....................................................111.2.Socio-economic context of LRGUs...........................................................................................20Chapter 2. Subnational Government Expenditures in Croatia....................................................................242.1.Overview of Spending Trends and Drivers...............................................................................242.2.Expenditures by economic classification...................................................................................272.3.Expenditures by functional classification..................................................................................32Education............................................................................................................................................33Health and social care........................................................................................................................36Chapter 3. Subnational Government Revenues and Debt in Croatia..........................................................423.1.Overview of Revenue Trends and Structure..............................................................................423.2.LRGU revenues.........................................................................................................................45Tax revenues........................................................................................................................................45Non-tax revenues.................................................................................................................................49Transfers.............................................................................................................................................503.3.LRGUborrowings and debt......................................................................................................52Chapter 4. Fiscal capacity...........................................................................................................................554.1.Fiscal capacity estimation in Croatia: is there room for improvement?....................................554.2.Scenario analysis for fiscal capacity calculations......................................................................604.3.Conclusions and recommendations...........................................................................................67References...................................................................................................................................................69Annexes......................................................................................................................................................70Annex 1: Additionaltables......................................................................................................................70Annex 2: Additional figures....................................................................................................................74Annex 3: Government expenditures according to functional classification (COFOG)..........................81 List of Figures Figure 1. Subnational government in Croatia.............................................................................................12Figure 2. Municipality size in the EU (2020).............................................................................................13Figure 3. Population change per city/municipality, in percent...................................................................14Figure 4. Fiscal decentralization in the EU in 2023...................................................................................20Figure 5. GDP per capita per county, 2021 (EU27=100)...........................................................................21Figure 6. Index of Development 2024.......................................................................................................23Figure 7. Total LRGU expenditures, 2010-2023........................................................................................25Figure 8. Total LRGU expenditure 2010-2023 by LRGU tier (as % of GDP)...........................................25Figure 9. Total LRGU expenditure per capita in EUR (2022).....................