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Labour Tax Wedge In The Republic Of Macedonia - Trends And International Comparison

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  • Predrag Trpeski
  • Biljana Tashevska

Abstract

The tax wedge is a significant part of total labour costs, which creates a difference between the gross wage and the net take-home pay. The tax wedge receives much attention in research, since it is perceived that high labour tax wedge has detrimental effects on labour market outcomes and causes higher levels of unemployment. The paper addresses the following issues: the effects of an increase or decrease of tax wedge on the labour market; the tax burden on labour in the Republic of Macedonia and the reductions of personal income tax and social contributions rates; an international comparison of the tax wedge and the position of Macedonia. A hierarchical cluster analysis was performed on 43 countries (OECD and EU members and EU candidate countries), resulting in three groups of countries classified according to their tax wedge, employment rate and unemployment rate. We found that OECD and EU countries can be classified into two groups, one with high tax wedge, high unemployment rate and low employment rate, and the other one with opposite characteristics. Macedonia belongs to the third group of countries with poorest labour market outcomes, while the average tax wedge is somewhere between those of the other two clusters. The results can serve the professional and scientific public in analyzing the labour market flexibility; as well as the relevant state institutions and policy makers, in conceptualization of appropriate policies aimed at changing taxes that burden wages. .

Suggested Citation

  • Predrag Trpeski & Biljana Tashevska, 2012. "Labour Tax Wedge In The Republic Of Macedonia - Trends And International Comparison," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(14), pages 1-24.
    • Handle: RePEc:alu:journl:v:2:y:2012:i:14:p:24
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    References listed on IDEAS

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    1. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    2. World Bank, 2011. "South East Europe Regular Economic Report, November 2011," World Bank Publications - Reports 26833, The World Bank Group.
    3. Alberto Behar, 2009. "Tax Wedges, Unemployment Benefits and Labour Market Outcomes in the New EU Members," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 069-092, March.
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    6. Primoz Dolenc & Milan Vodopivec, 2005. "The tax wedge in Slovenia: international comparison and policy recommendations," Financial Theory and Practice, Institute of Public Finance, vol. 29(3), pages 229-243.
    7. Primož Dolenc & Suzana Laporšek, 2010. "Tax Wedge on Labour and its Effect on Employment Growth in the European Union," Prague Economic Papers, Prague University of Economics and Business, vol. 2010(4), pages 344-358.
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    Citations

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    Cited by:

    1. Bashevska, Marija, 2014. "Политиките На Пазарот На Труд И Сиромаштијата Во Македонија, 2008 - 2013 [Labour market, employment policies and poverty in R. Macedonia, 2008 - 2013]," MPRA Paper 57768, University Library of Munich, Germany.
    2. Emin Efecan Aktaş, 2023. "How Tax Wedge of Low and Upper-income Households Affects Income Distribution: Findings from OECD Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2023(3), pages 246-272.
    3. Jarmila Rybová, 2015. "Cluster analysis in the field of taxation [Shluková analýza v problematice daní]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2015(3), pages 58-66.

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    More about this item

    Keywords

    tax wedge; labour costs; hierarchical cluster analysis; unemployment.;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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