The average tax wedge for Croatians in work dropped by 4.2 percentage points between 2014 and 2021, and a significant reduction was for employees under 30 due to a system of tax and contribution deductions for the youth, a study by the Institute of Public Finance (IJF) shows.

The average tax wedge measures the extent to which tax on labour income discourages employment. This indicator is measured in percentage of labour cost.

The study by the IJF’s Ivica Urban shows that the average tax wedge for the whole population of Croatians in employment fell from 34% in 2014 to 29.8% in 2021.

This happened after in 2015 the government launched a systematic reduction of the relative tax burden on wages and pensions.

The biggest drops in the tax wedge were observed for the 18-25 age cohort (-7 percentage points), and the 26-30 age group (-7.7 pp).

In 2014, the high tax wedge of above 42.5% applied to 9% of all employees in the country, compared to 1.7% of employees in 2021.

In 2021, half of young employees aged between 18 and 25 and a third of those aged between 26 and 30 had a tax wedge of below 22.5%.

Higher employment impacts migration flows among youth

Urban also commented on the jobless data collected by the national statistical office (DZS), which showed that the unemployment rate for young people aged between 15 and 29 declined from 32% in 2014 to 17% in 2012. The employment rate for this age cohort increased from 35% in 2014 to 42% in 2021.

Migratory indicators for this age group have also improved.

In 2017, when the emigration culminated, the number of young people who emigrated from Croatia was 8,700 higher than the number of those who immigrated into the country. In 2021, young immigrants outnumbered emigrants by 300.