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Does Formal Work Pay in Serbia? The Role of Labor Taxes and Social Benefit Design in Providing Disincentives for Formal Work

In: Poverty and Exclusion in the Western Balkans

Author

Listed:
  • Johannes Koettl

    (The World Bank
    IZA)

Abstract

There are two particular issues of the Serbian labor market of extreme importance in the recent debate: the high levels of inactivity and informal employment among the Serbian working-age population. Both of these issues lead to the question if it is actually “worthwhile” for the working-age population to engage in income-generating activities in Serbia. This chapter focuses on the role of labor taxation and social benefit design, how it relates to informal employment and inactivity, and what disincentives for formal work might be provided to people in working age so they choose to “exit” into informality or inactivity. The analysis shows that there are three main reform options to decrease informal employment and to activate the inactive (1) to make formal work pay for low-wage earners, (2) to genuinely means test any entitlements to free health insurance or other municipal entitlements, and (3) to step up inspections and enforcement. The two main policy tools to make formal work pay are to decrease labor taxation at the lower wage levels and to reform benefit design for social assistance and family benefits.

Suggested Citation

  • Johannes Koettl, 2013. "Does Formal Work Pay in Serbia? The Role of Labor Taxes and Social Benefit Design in Providing Disincentives for Formal Work," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Caterina Ruggeri Laderchi & Sara Savastano (ed.), Poverty and Exclusion in the Western Balkans, edition 127, chapter 0, pages 133-154, Springer.
    • Handle: RePEc:spr:esichp:978-1-4614-4945-4_9
    DOI: 10.1007/978-1-4614-4945-4_9
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    Citations

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    Cited by:

    1. H. Xavier Jara & María Cecilia Deza Delgado & Nicolás Oliva & Javier Torres, 2023. "Financial disincentives to formal employment and tax-benefit systems in Latin America," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(1), pages 69-113, February.
    2. World Bank Group, 2015. "Analysis of Potential Work Disincentive Effects of the Monthly Benefit for Poor Families in the Kyrgyz Republic," World Bank Publications - Reports 22966, The World Bank Group.
    3. Franziska Gassmann & Lorena Zardo Trindade, 2019. "Effect of Means-Tested Social Transfers on Labor Supply: Heads Versus Spouses—An Empirical Analysis of Work Disincentives in the Kyrgyz Republic," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 31(2), pages 189-214, April.
    4. World Bank, 2016. "Women's Access to Economic Opportunities in Serbia," World Bank Publications - Reports 25183, The World Bank Group.
    5. Indermit Gill & Johannes Koettl & Truman Packard, 2013. "Full employment: a distant dream for Europe," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-34, December.

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