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Croatia will watch whether euro adoption raises prices

Wednesday, January 4, 2023

Significance

After implementing its anti-inflationary stabilisation programme in 1993, Croatia recorded stable and modest inflation rates. That changed in 2022, when inflation accelerated above 10% year-on-year. An important policy issue arises: whether the effects of euro adoption on prices will be stronger than they would have been in a more stable inflationary environment.

Impacts

  • Price developments should be less favourable for increasing tax receiptsthan in 2022, but also put less pressure on budget expenditure.
  • The government may partly reduce the burden on state-owned enterprises of the relief measures that so affected their profitability in 2022.
  • The government could expect demands for some kind of compensation for the effect on other companies and sectors of its regulatory measures.
  • More profitable companies will become liable in 2023 for the excess profits tax that was adopted at end-2022 as a consequence of inflation.

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