The Distributional Impact of Serbia’s Taxes and Social Spending

In the context of economic recovery and structural reforms to boost Serbia’s living standards,understanding the impact of fiscal policy on inequality and poverty is key to inform policy choices. This paper’s keyresearch question is to analyze the redistributive effect of fiscal policy on income distribution and poverty in Serbia.It advances on the previous literature by comprehensively assessing the individual and combined effects of taxes andsocial spending on both inequality and poverty in Serbia, using the Commitment to Equity Assessment approach. Thefindings suggest that Serbia’s fiscal system is redistributive, reducing the Gini coefficient of income oncetaxes, transfers, and in-kind benefits in education and health are taken into account. However, theinequality-reducing impact of the fiscal system in Serbia is somewhat smaller than what is observed in other countries inCentral and Eastern Europe and Latin America, where similar analysis has been applied. Moreover, and like in some othercountries in Europe and Central Asia, the fiscal system increases poverty. Direct social transfers in Serbia arepro-poor and inequality reducing, but their impacts are not large enough to fully offset those of taxation sincespending on these programs is small. This analysis of fiscal incidence in Serbia provides a useful basis for assessingthe impacts of potential changes in taxes or benefits, which can inform options to mitigate short-term adverse impactsand build support for reforms.