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The article analyses the redistributive effect attained by personal income  tax, social security contributions and social benefits in Slovenia and  Croatia. The redistributive effect is decomposed first to reveal  progressivity and horizontal inequity effects, and further to show  contributions of different tax and benefit instruments. Even though both  countries started from the same socioeconomic background two decades ago, the  current results reveal divergence that is a consequence of diverse  development during this period. The results indicate that Croatia experienced  significantly higher pre-fiscal income inequality and lower redistributive  effect than Slovenia. Horizontal inequity effects, though, were higher in  Slovenia than in Croatia. In both countries, the meanstested social benefits  exerted an over-proportionate influence on the vertical effect, suggesting a  strong impact of the welfare state on income position of their residents, but  also induced a large amount of horizontal inequity. In Slovenia, the  non-means-tested benefits slightly increased income inequality

Income redistribution through taxes and social benefits: The case of Slovenia and Croatia