Balkans\u00a0inequality extends to virtually all aspects of social and economic life, and is viewed by a large majority of the region\u2019s citizens as deeply unjust. The\u00a0inequality undermines the stability and legitimacy of institutions and policies, and\u00a0represents a powerful drag on Balkan\u2019s development prospects. These reasons put\u00a0social equity at the top of the region\u2019s development agenda.<\/p>\n
A close inspection of the international evidence on income inequality reveals that\u00a0the big difference between Balkans\u00a0and the more egalitarian countries of Western\u00a0Europe lies not so much in the extent of the inequality resulting from market forces, but\u00a0in the redistributive power of the state.<\/p>\n
To put it differently, the gap between the two\u00a0regions in terms of income inequality is much bigger after taxes and public transfers than\u00a0before taxes and transfers, and this implies that a good deal of Balkan\u2019s excess\u00a0inequality over international levels reflects the failure of the region\u2019s fiscal systems to\u00a0perform their redistributive functions.<\/p>\n
And the magnitude of this failure is considerable. While in European countries direct fiscal redistribution leads to an average reduction of\u00a0some 15 percentage points in the Gini coefficient of the distribution of income, in Balkans\u00a0the reduction is on average about 9\u00a0percentage points.<\/p>\n
The evidence from rich countries also shows that the bulk of the state\u2019s\u00a0redistributive impact is due to the effect of public transfers. They account for over three fourth\u00a0of the overall redistributive effect.<\/p>\n
Yet this is a conservative figure, because it\u00a0ignores the regressive impact of indirect taxes, which counteracts much of the progressive effects of direct taxes, so that on the whole taxes likely achieve little or no\u00a0redistribution, and the full distributive impact of the fiscal system is due to transfers.<\/p>\n
The\u00a0poorly at fiscal redistribution has\u00a0three potential explanatory factors, namely: (i) too low a volume of resources\u00a0gets collected and transferred; (ii) tax collection is regressive; and (iii) transfers are\u00a0poorly-targeted.<\/p>\n
All three are at play, to different extents in different countries, but on the\u00a0whole the conclusion is that the prospects for significant fiscal redistribution lie mainly in\u00a0increasing the volume of resources available for redistributive spending, and improving the targeting of expenditures.<\/p>\n
In contrast, even significant increases in the progressivity\u00a0of Balkan\u2019s tax systems, which at present appear to be roughly neutral from the\u00a0perspective of distribution are likely to have only a modest effect on the distribution of\u00a0income.<\/p>\n
From the perspective of inequality reduction, the overall volume of tax revenue is likely to be a more important priority than the progressivity of the\u00a0revenue-raising system, a conclusion that echoes the experience of the European\u00a0countries.<\/p>\n
These considerations offer some guidance for the design of reforms to make Balkan\u2019s fiscal systems more conducive to equity.<\/p>\n
Such reforms will likely\u00a0pose significant institutional and implementation challenges, which deserve separate\u00a0analysis. But the specific reform priorities\u00a0obviously vary across countries. In some countries the top priority is to expand tax\u00a0collection and thereby the volume of transfers.<\/p>\n
In all\u00a0of Balkan countries, there is significant scope for\u00a0raising tax collection by reducing tax concessions and loopholes, and especially\u00a0improving tax administration to reduce evasion, which is rampant across the region.<\/p>\n
Making the tax system more progressive will also help,\u00a0although in general the quantitative impact on inequality is likely to be modest. This does\u00a0not mean that the structure of the tax system is irrelevant, but only that tax choices should\u00a0be primarily based on the efficiency and administration costs of different taxes.<\/p>\n
For\u00a0example, the\u00a0taxes\u00a0on financial services,\u00a0now in place in a number of developed and in developing\u00a0countries, may\u00a0be a matter of concern in view of its distorting potential.<\/p>\n
Budget of state has some important expenditures like\u00a0social spending categories\u00a0(education and health) that play a very significant role in the distribution of household\u00a0income, not only in terms of the direct incidence of the expenditures across the income\u00a0distribution as transfers in kind, but also indirectly, because they can help raise the\u00a0human capital assets of the poor and thereby their future incomes.<\/p>\n
Similarly, social equity is also affected by how well the state does at performing\u00a0its other two classic objectives of efficiency and stabilization, because ultimately this\u00a0affects the economic opportunities available to the poor and the distribution of market
incomes.<\/p>\n
Through these indirect channels, fiscal policy can also have a major impact on\u00a0Balkan\u2019s inequality.<\/p>\n
Regarding the stabilization objective of fiscal policy, for\u00a0example<\/em>, one important, contribution to social equity relates to the prevention of crises.\u00a0Macro-financial crises are almost invariably highly regressive because the costs of their\u00a0resolution, in the form of resource transfers to better-off investors, end up being borne by\u00a0all taxpayers; furthermore, the poor often are the most adversely affected at times of\u00a0crises because they lack the assets to smooth out adverse income shocks.<\/p>\n Excessive\u00a0public indebtedness and procyclical fiscal policies have been key factors behind the\u00a0region\u2019s vulnerability to crises.<\/p>\n This means that fiscal prudence, possibly guided by\u00a0formal fiscal rules that allow the operation of counter-cyclical policies and particularly\u00a0of counter-cyclical social expenditures is also an essential part of a fiscal agenda to\u00a0reduce inequality in Balkans.<\/p>\n \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":" Balkans\u00a0inequality extends to virtually all aspects of social and economic life, and is viewed by a large majority of the region\u2019s citizens as deeply unjust. The\u00a0inequality undermines the stability and […]<\/p>\n","protected":false},"author":2,"featured_media":6056,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[9756],"tags":[8377,8378],"class_list":["post-7130","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-income-redistribution","tag-power-of-state"],"featured_image_src":{"landsacpe":["https:\/\/altax.al\/wp-content\/uploads\/2017\/10\/inequality.jpg",400,166,false],"list":["https:\/\/altax.al\/wp-content\/uploads\/2017\/10\/inequality.jpg",400,166,false],"medium":["https:\/\/altax.al\/wp-content\/uploads\/2017\/10\/inequality-300x125.jpg",300,125,true],"full":["https:\/\/altax.al\/wp-content\/uploads\/2017\/10\/inequality.jpg",400,166,false]},"yoast_head":"\n