Does Taxation Foster Entrepreneurship across Western Balkans Countries? Empirical Evidence across 30 Years

ABSTRACT

Purpose

In developing economies, which aim to join the European Union in the upcoming future, entrepreneurial endeavors are important and defining for their economic growth. Most of the time, potential investors are incentivized to choose a particular market through tax benefits, tax exemptions, streamlined registration procedures, tax systems and less red tape.

Methodology/Approach

By means of panel data modeling, we investigated the relationship between entrepreneurship and taxation-related matters on a sample of six economies from the Western Balkans region during the period 1991‒2021.

Findings

Overall, empirical results showed that increasing registration costs hindered the creation of new businesses in the region. Still, if other taxes payable by businesses increased while authorities provided substantial tax reliefs, the creation of new companies would continue. At national level, we found that taxation often fuels entrepreneurship and improves new business density rates. Relevant policy implications are also addressed.

KEYWORDS:

• Entrepreneurship
• business opportunities
• taxation
• contributions
• profit

Acknowledgements

Authors are grateful to the journal editors and anonymous reviewers for their valuable input and suggestions on an earlier version of the manuscript.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. The asterisk (*) is used in official EU documents and other international bodies when referring to Kosovo, with the following wording: “This designation is without prejudice to positions on status, and is in line with UNSC 1244 (1999) and the ICJ Opinion on the Kosovo Declaration of Independence”.

2. For comparative purposes, all start-up business costs were converted from national currencies (i.e., Albanian lek ‒ ALL; Bosnia and Herzegovina convertible mark ‒ BAM; Macedonian denar ‒ MKD; Serbian dinar ‒ RSD) to Euros. Montenegro and Kosovo have adopted the Euro as national currency, although being regions outside the Eurozone. For cost levels in national currencies, see the official webpages of respective public authorities.