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This paper examines how labor taxation (personal income taxes and social security contributions) in the Western Balkan contributes to labor market outcomes such as high informality and a significant gender gap in participation rates. We find that limited progressivity combined with high tax wedge on low incomes poses a major twin equity-efficiency challenge in the region, resulting in low redistributive capacity and inadequate incentives to enter the job market. Policy implications are discussed with a view to alleviating the excessively high tax wedges on low incomes, while improving progressivity of income taxation.

North Macedonia, Republic of --- Macroeconomics --- Economics: General --- Taxation --- Labor --- Personal Finance -Taxation --- Corporate Taxation --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Fiscal Policies and Behavior of Economic Agents: Household --- Taxation, Subsidies, and Revenue: General --- Wages, Compensation, and Labor Costs: General --- Demand and Supply of Labor: General --- Business Taxes and Subsidies --- Economic & financial crises & disasters --- Economics of specific sectors --- Welfare & benefit systems --- Public finance & taxation --- Labour --- income economics --- Corporate & business tax --- Labor taxes --- Taxes --- Personal income tax --- Tax wedge --- Tax policy --- Wages --- Labor markets --- Currency crises --- Informal sector --- Economics --- Income tax --- Tax administration and procedure --- Labor market --- Social security --- Income economics