2.4. Structure of general government revenues

Breaking down the structure of government revenues shows how these are raised and helps identify the relative contributions of citizens and/or sectors of the economy to finance government expenditures. In the Western Balkans, governments face significant challenges to raise taxes and contributions to finance much needed investments (e.g. in electricity supply and education), due to the size of the informal economy. At the same time, the effectiveness of policy choices to increase tax registration and compliance (e.g. VAT refunds) should be assessed (IMF, 2018).

In 2018, on average, 64.5% of government revenues came from taxes in Western Balkans. This proportion is larger than that of OECD and EU countries (59.4% and 59.6% respectively). Social contributions represented 25.5% in Western Balkans, compared to 29.5% for EU economies. Grants and other revenues represented 10.0% in Western Balkans, and 15.3% in OECD countries, given that some countries rely heavily on income from the exploitation of natural resources.

The share of taxes in total revenues varies largely among the Western Balkans. Kosovo raises the largest proportion of revenues from taxes (92.0%), especially from VAT (which represents one third of tax-revenues), while in Bosnia and Herzegovina taxes represent the smallest proportion in the region (53.4%). This country also relies mostly on indirect taxes, which are collected at the central level, while other taxes are collected at the lower levels of government (European Commission, 2018).

In Kosovo, there are no social contributions. In 2003, Kosovo reformed its pension system and eliminated wage-based contributions, instead they are financed by government revenues, since only a small share of the population earns a formal wage income. In Bosnia and Herzegovina, social contributions represented 35.0% of total revenues in 2018. This country also has a large informal economy that forces the taxes and social contributions to be higher than they would be necessary otherwise, adding a significant fiscal burden on registered labour and discouraging registration (European Commission, 2018).

In comparison with 2011, the contribution of taxes to the revenue mix of the Western Balkans grew by 1.8 p.p., a similar proportion to EU (1.6 p.p.) and OECD countries (1.2 p.p.). The share of grants and other revenues (including sales) has decreased by 1.9 p.p. in the Western Balkans while in OECD countries, there was a reduction of 1.4 p.p. and in EU, 1.1 p.p. By contrast, the share of social contributions has remained stable in Western Balkan region (+0.1 p.p.), while it has slightly decreased slightly in EU countries (-0.5 p.p.).

Among the Western Balkans, North Macedonia has experienced the largest change in the revenue mix. The share of taxes has increased by 6 p.p. since 2011, while grants and other revenues decreased by 5.3 p.p. There was also a change in the tax mix, with an increased contribution of excise and profit taxes, and a decline in the VAT contribution, given the wide range of products that are exempted, such as road tolls (World Bank, 2018).

Methodology and definitions

Data are drawn from the IMF Government Finance Statistics (IMF GFS) database, which applies the concepts set out in the Government Finance Statistics Manual (GFSM). The GFSM provides a comprehensive conceptual and accounting framework suitable for analysing and evaluating fiscal policy. It is harmonised with the other macroeconomic statistical frameworks, such as the System of National Accounts (SNA).

Revenues include taxes (e.g. on consumption, income, wealth, property and capital), net social contributions (i.e. contributions to pensions, health and social security) and grants and other sources (e.g. current and capital grants, property income and subsidies, and sales of goods and services which refer to market output of establishments in government).

The general government sector consists of all units of central, state or local government, all non-market non-profit institutions that are controlled by government units, and social security funds (either as separate institutional units or as part of any or all of central, state or local government). The sector does not include public corporations or quasi-corporations that are owned and controlled by government units. However, unincorporated enterprises owned by government units that are not quasi-corporations are included in the general government sector.

For the OECD and EU averages, data are derived from the OECD National Accounts Statistics database, which is based on the SNA framework.

Further reading

European Commission (2018), Bosnia and Herzegovina 2018 Report, SWD (2018) 115 final, European Commission, Strasbourg.

IMF (2018), Kosovo 2018 Article IV Consultation. IMF Country Report No. 18/368. IMF, Washington, DC.

World Bank (2018), Sowing the Seeds of a Sustainable Future: North Macedonia Public Finance Review, Report No. 135704 – MK, World Bank, Washington, DC.

Figure notes

Data for revenues under the IMF GFS framework do not include Output for own final use. Data for Kosovo and North Macedonia are recorded on a cash basis. Data for Montenegro and Serbia are not available.

2.10. Data for North Macedonia refer to 2013 rather than 2011.

2.9. Structure of general government revenues, 2018

Source: IMF Government Finance Statistics (IMF GFS) database. Data for the OECD and EU28 averages are based on the OECD National Accounts Statistics database

 StatLink https://doi.org/10.1787/888934128574

2.10. Change in the structure of general government revenues, 2011 to 2018

Source: IMF Government Finance Statistics (IMF GFS) database. Data for the OECD and EU28 averages are based on the OECD National Accounts Statistics database

 StatLink https://doi.org/10.1787/888934128593