This policy paper analyzes the issue of the tax wedge in FBiH with the purpose of providing relevant findings, policy options, and recommendations for the policymakers. The methodology used in the preparation of this paper includes quantitative and qualitative research methods. At the same time, we highlight that this policy paper is built on the previously developed Center of Excellence for Evaluation and Policy Research’s (CoE) products. So, it is a methodological continuation of two previous reports (In-depth analysis and Policy models).
Since the present policy problem lies within the government’s procedures, and the wide scope of policy instruments that determine tax wedge (The Law on contributions and the Law on Income tax), the number of policy options included in this policy paper is restricted to two: firstly, maintaining the current state (no policy change) and secondly, addressing proposed changes by the government. We also set two main criteria for the assessment of the policy options. The first is related to the alignment of the policy option with FBiH’s strategic documents and European Union’s (EU) recommendations, while the second assesses the expected financial impact.
Finally, between the two options we recommend no policy change option, as it still better reflects the strategic directions of the FBiH, and EU recommendations. However, a “no policy change” recommendation means that further efforts are needed to find the right policy mix that would decrease tax wedge for low-income earners, decrease informal employment and improve competitiveness and business environment.
Full Policy Paper can be downloaded here: