Will Lower Income Tax Rates Really Attract Croatian Emigrants Home?

Lauren Simmonds

Updated on:

Copyright Romulic and Stojcic
Copyright Romulic and Stojcic

As Novac/Ivan Zilic writes, there are fewer and fewer people in Croatia. According to demographers’ estimates, up to 10 percent fewer people can be expected in the new census than in the 2011 census, a dramatic drop for an already very small country. If, by any chance, we lost 10 percent of Croatian territory in 10 years, and not 10 percent of the people, the alarm would likely have been louder, but in Croatia, land has a price, but people don’t.

At the same time, even from a narrow-minded economic perspective, people are the most valuable resource any country has. Without people there is nobody to create, produce, spend, fill the budget, pay pensions, without people there can be no economy. This is something that has placed such a spotlight on Croatian emigrants as the country’s demographic picture worsens.

Although demographic decline is a deeply layered problem, one of the important factors of Croatian depopulation is emigration, especially after the country joined the European Union back in 2013, when whole families headed off abroad in search of a better life. According to official data, in the seven years since joining the European Union, over 100,000 more people emigrated from Croatia than immigrated to it, but that number is actually higher, because official statistics fail to fully cover the scale of emigration.

Youth unemployment

Often when analysing the causes of migration, economists talk about the factors that encourage migration from a person’s home country and the factors that attract migration to their destination country (push and pull factors). Analysing the causes of migration, the European Parliament’s report Exploring migration causes – why people migrate, lists three basic groups of push and pull factors – socio-political, demographic-economic and environmental.

In the case of Croatian emigrants, these factors are often reduced down to the labour market, which gives migration an economic connotation. Indeed, looking only at the basic indicators of employment opportunities in Croatia and the countries to which Croats have emigrated in the last decade – Germany, Austria and Ireland – it’s clear how unattractive Croatian economic optics are. For example, according to Eurostat data for 2019, the average annual net income in Germany, Austria and Ireland is more than three times higher than it is in Croatia, while youth unemployment (15-24 years) in Croatia is almost three times higher than in the aforementioned countries.

In addition to the labour market, a poor political economy also contributes to Croatian emigrants making the decision to jump ship. According to the Corruption Perceptions Index, Croatia is at the very bottom of the European Union, while when it comes to the Democracy Index, calculated by The Economist, the country has been falling in recent years. But perhaps the most important indicator of the poor state of the political economy and the general lack of perspective are the results of the Life in Transition survey, conducted by the European Bank for Reconstruction and Development. The results suggest that people in Croatia, but also in the entire former Yugoslavia, have record low beliefs that a decent life can be achieved through hard work and effort, and that political ties are a much more important factor.

Economic migration

It should be borne in mind that in the survey, Croatia is compared with post-transition countries and yet it still ranks low. By joining the European Union, the powers that be thought Croatia would become more powerful economically, but nobody counted on young, working age people going off to Ireland and Germany far more easily. They instead thought that Croatia would instead become as developed as Ireland and Germany. Not so.

Croatia’s institutional and economic convergence with the European Union is a slow process, so emigration should be seen as a democratic act of “voting by foot”. However, the emigration wave after Croatia’s accession to the EU is a given situation. People who have left live in better and more responsible systems, and their return can be an opportunity to create the potential for social and economic change. Observing emigration to the Western Balkans, Ivlevs and King in their 2017 paper conclude that people who have a family member who emigrated have a lower propensity for corruption, and that emigration often causes the transfer of cultural norms from the place of emigration to the home country.

Additionally, there is evidence that the human capital that people acquire in migration in the event of return can have a positive impact on the economy. In a 2017 paper, Bahar and his co-workers looked at where refugees from the wars in the former Yugoslavia worked in Germany, and conclude that when these same people return to their countries, the sectors in which they worked begin to export more. Although the episode of war migration is different from the economic migration we’re currently witnessing, some patterns can be revealed – people who have gone to more developed countries carry considerable human, financial and social capital, and an attempt should be made to bring them back.

Political will

Will many Croatian emigrants happily jump on a plane and return home from Ireland just because of a slightly lower income tax rate? In order to significantly eliminate the initial pressure on people to emigrate, Croatia needs to converge institutionally and economically with the European Union, and this requires more fundamental changes than changes in tax rates. We need to tackle the problems. Otherwise, existing worrying emigration and demographic trends will continue, and each new census will only bring worse news.

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