Inequality that costs – Fiscal reform for economic equality in Albania

In a Balkans facing deep social and economic challenges, Albania stands out not for progress, but for deepening inequality. The current fiscal system does not mitigate inequality — on the contrary, it cements it.

This is one of the strongest findings of the report “Tax Burden in Albania and the Western Balkans 2024”, which places Albania among the countries with the most regressive tax structures in the region and with an extremely modest effect on poverty and inequality reduction.

A system that harms the weakest and rewards the strongest

Instead of functioning as an instrument of social justice, the tax system in Albania exhibits the characteristics of a model that widens the social gap — excluding the most vulnerable and favoring economic elites. Flat taxes, selective exemptions, and high informality are the key elements of this unequal formula.

Tax evasion in Albania reaches 33–38% of the tax potential — one of the highest levels in the region.

It is not merely a violation of the law, but a systematic form of social injustice, because someone else pays for what others hide. In construction, trade, and services — sectors where large profits circulate — taxes are significantly lower than they should be, while the ordinary citizen experiences daily the heavy burden on consumption and low incomes.

Fiscal exemptions, theoretically justified as incentives for investment or sectoral development, in practice have turned into instruments of privilege — often without cost-benefit analysis and with a direct impact on worsening competition and increasing inequality. Energy, tourism, agriculture, and the tech sector benefit from preferential treatment that is often unjustified by real outcomes in the economy or well-being.

The concrete damage?

A state that does not redistribute, but reinforces inequality.

The data speak for themselves.

While the European Union manages to reduce the Gini coefficient from ~0.47 to ~0.30 through its fiscal system and social schemes (a 36% redistributive effect), Albania reduces it only from ~0.44 to ~0.35 — a much more modest effect of just 20%. This means public policies lack the strength to correct structural inequalities.

At its core, Albania’s tax system is closer to a neutral tool than a mechanism for social justice. Taxes do not “speak” the language of equality, but that of financial conformism and narrow interests.

Informal employment — a wound that deepens poverty

The most affected group by this system are informal workers. With around 30% of the labor force outside the insurance schemes, citizens lose access to pensions, healthcare, and job security. Women and youth are particularly exposed, creating a cycle of poverty that is inherited across generations.

Time for a new fiscal justice

The report emphasizes that increasing public revenue only makes sense if it is based on justice and progressivity. Albania does not have the luxury to continue with fiscal patchworks. A deep reform is needed, with four essential pillars:

• Expanding the tax base through serious efforts against evasion and inclusion of the informal sectors in obligation payments.
• Eliminating selective exemptions that do not bring sustainable development and harm competition.
• Taxing wealth and capital to restore balance and increase the contribution of the wealthier classes.
• Strengthening social schemes with targeted transfers that provide real support for those most in need.

Fiscal justice as the foundation of sustainable economy

A fiscal system that does not address inequality is a system that undermines economic development and civic trust. If Albania aims for a fair and European future, fiscal justice is no longer an option — it is a necessity. The time for change is now.
Because inequality is not just a social injustice — it is an obstacle to economic development and functional democracy.