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This paper develops and tests new (alternative) models for assessing the development of subnational government units in Croatia. The aim is to assess the possibilities for improving the existing official model for calculating the development index of subnational units. Given its high policy impact, especially in terms of central-level support for the local development projects, there is a strong policy interest for continuous monitoring and evaluation of model’s validity. In essence, the paper considers different variants of the existing model, since all tested variants retain some of its key elements. In particular, all variants still use the balanced z- score method to calculate standardized values. Also, each development indicator included has equal weight in the final assessment of development. However, we alter the choice of development indicators and consider some other aspects of the calculation and categorization of units by development groups. Testing of new variants was performed in two steps: in the first step, we examine the suitability of new potential indicators, and in the second step, we test different models by retaining some existing and adding new indicators. A total of seven new model variants were developed, which differ from each other based on the indicators included. To this end, the scenario analysis was performed to assess the effectiveness of various models in identifying less developed local government units. Despite our efforts to identify new indicators that would be more effective in categorizing local and regional government units based on their level of development, we recommend retaining the existing set of indicators. However, the Government might consider excluding the own-source revenue per capita as an indicator for calculating the development index because the indicator of fiscal capacity is already used for redistributive purposes within the fiscal equalization policy. |
