Labor Taxation in the Western Balkan: Looking Back and Forward

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. We find that limited progressivity combined with high tax wedge on low incomes poses a major twin equity-efficiency challenge in the region, resulting in low redistributive capacity and inadequate incentives to enter the job market. Policy implications are discussed with a view to alleviating the excessively high tax wedges on low incomes, while improving progressivity of income taxation. RECOMMENDED CITATION: Jousten et al. “Labor Taxation in the Western Balkan: Looking Back and Forward”, IMF Working Paper WP/22/239, 2022. JEL Classification Numbers: H24, H31.