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Univerziteta u Beogradu
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A low-wage, high-tax trap in the Western Balkans
Arandarenko, Mihail
Aleksić, Dragan
ABSTRACT The labour market performance of the Western Balkan region lags far behind the EU average. Although a good part of that lag can be explained by differences in GDP per capita and in the overall level of economic development, the rest can mostly be attributed to their suboptimal institutional configuration. We identify the labour taxation system as one of the most critical institutions and also as a field where most progress can be made. The taxation of labour income in the Western Balkans is skewed towards relatively high social security contributions, combined with a lower and relatively flat personal income tax. Low wage earners are particularly disadvantaged in the formal labour market in terms of their low net take home pay and the relatively high cost of hiring, with respect to medium or high wage earners. The implicit tax rate on labour (that is, the effective average labour tax burden) in Montenegro, Serbia and Bosnia and Herzegovina is among the highest in Europe. A major reform of the entire system of labour taxation and social insurance appears to be the most promising avenue for the revitalization of regional labour markets.
engleski
2022
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KEY WORDS: Labour costs, tax wedge, low-wage earners, Western Balkans
10.1007/978-3-031-06112-7_2