Revisiting the Tax Wedge in Bosnia and Herzegovina

This paper revisits labor tax wedge issues in Bosnia and Herzegovina (BiH) in light of recent changes to minimum wages and social security contribution (SSC) rates. Using detailed information, it provides estimates of average and income-specific labor tax wedges in both the Federation of BiH (FBiH) and Republika Srpska (RS). The effective tax wedge may be lower than suggested by conventional measures—particularly in (FBiH), where non-taxable employment benefits and preferential income tax treatments encourage tax-saving arbitrage. Reforms toward a more efficient, progressive and transparent system are necessary to boost fiscal and growth outcomes. There is significant scope for simplification, base broadening and greater progressivity, which could pave the way for future headline SSC rate cuts.