An Evaluation of Montenegro’s 2022 Minimum Wage and Income Tax Reform

Between 2018 and 2022, Montenegro introduced a series of significant policy reforms. The reforms affected economic, educational, and social policies, ranging from the introduction of a universal child allowance to major changes in its labour market regulations and tax rules. From an economic policy perspective, the most significant reform package was implemented in January 2022. It was composed of a huge increase in Montenegro’s statutory minimum wage, alongside a new income tax regime and the abolishment of mandatory health insurance contributions. According to the Government, the reform package aimed at increasing the living standards of citizens and promoting a more sustainable and inclusive growth model.

This report evaluates the conjoint impact of this reform package (henceforth, the “2022 reform”). The evaluation is mainly based on two different sets of data. On the one hand, we will use data from Montenegro’s Labour Force Survey to describe the labour market conditions during the reform period, and to provide evidence of employment and unemployment rates. On the other hand, we obtained access to rich administrative tax data that covers firm-level information on value-added taxes and corporate profit taxes, as well as individual-level information on monthly income taxes for selected months between 2017 and 2022. This tax data enables us to study the effects of the 2022 reform at the firm-level and the individual-level, respectively.