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The exports of Croatian manufacturing industry have been stagnating over the last decade or so. Over the same period there have been relatively high inflows of foreign direct investment (FDI) into industry. The aim of this paper is to examine, after controlling for other potentially significant variables, whether these inflows have had an impact on export performance. Using the panel data approach for 21 manufacturing industry sectors over the period between 1996 and 2002, it is found that FDI has positively and significantly affected exports, but the extent of this impact was relatively low. This implies that there is a potential for improving the export performance of Croatian manufacturing industry by attracting more FDI into this sector. Policy makers should try to enhance the potential positive effects of FDI by targeting specific export-oriented greenfield foreign investment, and, in addition, implement measures to increase potential spillover effects.

The paper analyses the practice and basic features of local government unit borrowing in Croatia from 1997 to 2003. Local government units still rely on classical forms of loans as a form of security for resources for financing capital projects and there is little incentive for the issue of local government bonds. The borrowing conditions laid down are not a good basis on which to develop a local debt market or for facilitating local government borrowing. One of the reasons is also the dominant role of the city of Zagreb, which should be excluded from the establishment of budgetary restrictions on the borrowing of the other local government units in Croatia. Subsidised loans to local government units via the government financial institutions have been in some periods more expensive than via the commercial banks, and it is necessary to carry out a review of their role in the financing of local government unit capital projects. In any analysis of the borrowing and the size of the debt of local government units it is necessary to include the categories of financial assets as a better indicator of solvency and ability to repay debt. The article draws attention to a potential hold-up in the implementation of fiscal decentralisation, because local government units are investing some of their funds in the financial assets (shares and equity) of local utility firms.

The Croatian Parliament has the right to modify the Government’s proposal of the budget, which in reality it does very rarely, because the ruling coalition has a majority of votes, as well as because the members mainly follow the party line. This is the basic reason for the relative insignificance of the Parliament as compared with the part it might really play during the legislative phase of the budgetary process. Research carried out in Parliament indicated drawbacks and shortcomings of the Parliament and showed that there is a lot of room for enlarging the importance of Parliament in the budgetary process.

The objective of this research is to calculate the costs of tax compliance faced by those in Croatia who have to pay special taxes, i.e., excises. The research was done face-to-face (interview survey) and by postal questionnaire, in the period from May to September 2002, relating to operations in 2001. The research was done partly by a market research agency (PULS) and by the investigator herself. The questionnaires were based on foreign research (Sandford 1989, Shekidele 1996, Haughton 1998) and partly on tax regulations regarding excise in Croatia. The selection of the sample, in comparison with that in studies related to compliance costs of other taxes, was relatively simple, since there are fewer entities liable to pay excises. The response rate was different per given excise, and a better response was obtained with a face-to-face interviews. The following were calculated: the costs of the time of employees expended, external costs, which include the fees paid to outside accountants and other advisors dealing with tax issues, the material and some other costs, but only those that were exclusively connected with excise matters. There were many restrictions here, such as the problem of the precise determination of the number of employees and the working time spent, because they were at the same time carrying out other matters related to accountancy and finance, as well as the determination of material costs that are not specifically shown according to place of origin. The respondents themselves estimated these magnitudes, which ultimately, after the processing of the questionnaire, might lead to unreliable conclusions ; and yet, as Keynes said: “ It is better to be approximately right than precisely wrong” (in Haughton, 1998). Taking these restrictions into account, the results obtained suggest that the costs of those liable to pay excise are low and that the taxation procedure is relatively simple, particularly after the expiry of the initial phase in which the taxes were introduced. Since this is the first such investigation in Croatia and since such research is not common even in international dimensions, it can be considered an initial attempt that will be a point of departure for further research. It should correct the drawbacks and problems that occurred during the research, and hence improve the quality and reliability of future results.

Monetary methods of measuring the underground economy (UE) in all their variations are traditionally based upon domestic monetary aggregates. In recent times, however, there has been an increasing amount of evidence supporting the thesis that it is actually foreign currency that is very often linked with the UE in countries in which the phenomenon of dollarisation is widespread. New understanding of the extent and dynamics of dollarisation can, then, provide important information about the dynamics of the UE in these countries. Results derived from estimates of the amount of foreign cash in circulation in Croatia, in our estimation, show a rising tendency in the UE, like traditional monetary methods, which in principle does not have to be the case. Similar tendencies in the UE are indicated by the dynamics of electricity consumption.

Croatia is to introduce the value added tax on January 1, 1998. The purpose of this research project was to make an estimate of VAT revenues. The estimates were made using two methods: first, according to other similar estimates, and second, through macroeconomic aggregates. Using the first method, and making a comparison with countries which have a single rate similar to that of Croatia (Denmark 22% and Norway 20%) and a similar base to that of Croatia (all goods and services), the author foresees that after the introduction of VAT the revenues would represent about 10% of GDP. Using the second method the author concludes that the revenues collected from VAT would make about 12% of GDP. So according to both methods a reduction of revenues from indirect taxation is expected in Croatia after the introduction of VAT: In recent years sales tax has been making about 13% of GDP.