Labor Taxation in the Western Balkan: Looking Back and Forward

IMF Working Papers, December 2, 2022

Source details

Canonical URL: Labor Taxation in the Western Balkan: Looking Back and Forward

Authors: Alain Jousten, Mario Mansour, Irena Jankulov Suljagic, Charles Vellutini
Published: December 2, 2022
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400227769.001

This paper examines how labor taxation (personal income taxes and social security contributions) in the Western Balkan contributes to labor market outcomes such as high informality and a significant gender gap in participation rates.
The analysis focuses on the twin equity-efficiency challenge arising from limited progressivity combined with high tax wedge on low incomes, leading to low redistributive capacity and inadequate incentives to enter the job market.

Limited progressivity of income taxation in the Western Balkan.
High tax wedge on low incomes contributes to:
- High informality.
- A significant gender gap in participation rates.
- Low redistributive capacity.
- Inadequate incentives to enter the job market.

Alleviate excessively high tax wedges on low incomes.
Improve progressivity of income taxation.
Policy discussion centers on balancing reductions in tax wedges for low incomes with measures that enhance the redistributive capacity of the tax system.