Fiscal Federalism in Bosnia and Herzegovina

The following paper deals with the fiscal federalism in Bosnia and Herzegovina (BiH). It provides a detailed description of the development of the fiscal federalism in BiH since the Dayton peace process, illustrates how the public finance system in BiH is designed, and identifies the main differences between the Republika Srpska and the BiH Federation. We analyze the revenue disparities between the cantons and their respective municipalities which are boosted by the origin, or rather, the derivation principle in tax collection, and present an equalization system based on the VAT which can minimize the fiscal gaps mainly in the Federation of Bosnia and Herzegovina (FBiH). This paper highlights the successful process and the unsolved problems of the recently introduced Value Added Tax in BiH.