Fiscal Reform as a Structural Driver: Assessing Tax Structures and Economic Growth in North Macedonia
-
Liridona SEFERI Faculty of Business and Economics, South East European University, Tetovo, North Macedonia
-
Merale Fetahi VEHAPI Department of Finance and Accounting, Faculty of Economy, University of Tetovo, North Macedonia
Fiscal sustainability remains a cornerstone of structural reform for transitional economies in the Western Balkans. This study evaluates the impact of direct and indirect taxation on the economic growth of North Macedonia using quarterly data from 2010Q1 to 2023Q4. Employing a Vector Autoregression (VAR) framework and Ordinary Least Squares (OLS) regression, the research identifies the distinct economic outcomes associated with varying tax structures. The findings reveal that while both direct and indirect taxes influence growth, North Macedonia’s path to sustainable social and economic development is increasingly dependent on the transition toward progressive direct taxation. The comparative analysis with neighbouring Western Balkan states highlights North Macedonia's unique fiscal position and provides a roadmap for policy reforms aimed at reducing income inequality while maintaining financial resilience. This study offers critical evidence for policymakers tasked with modernizing fiscal architectures in emerging markets.
Copyright© 2026 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Article’s history: Received 30th of November, 2025; Revised 7th of January, 2026; Accepted 12th of February, 2026; Available online: 15th of March, 2026. Published as article in the Volume XXI, Special Issue 1(91), 2026.
Seferi, L., Vehapi, M. F., & Alija, S. (2026). Fiscal Reform as a Structural Driver: Assessing Tax Structures and Economic Growth in North Macedonia. Journal of Applied Economic Sciences, Volume XXI, Special Issue, 1(91), 11– 28. https://doi.org/10.57017/jaes.v21.si.1(91).01
Acknowledgments/Funding: N/A
Conflict of Interest Statement: The authors declare that no commercial or financial relationships exist that could be construed as a potential conflict of interest.
Data Availability Statement: The data used in this study are derived from publicly available macroeconomic databases, including the National Bank of the Republic of North Macedonia, the State Statistical Office, and the Ministry of Finance of the Republic of North Macedonia. The dataset covers quarterly macroeconomic indicators for the period 2010Q1–2023Q4. All data sources are publicly accessible, and the compiled dataset used in the analysis can be obtained from the corresponding author upon reasonable request.
Ethical Approval Statement: This study does not involve human participants, personal data, or experimental procedures. The research is based exclusively on secondary macroeconomic data obtained from publicly available official databases. Therefore, formal ethical approval was not required. The study was conducted in accordance with standard academic research ethics and principles of transparency, integrity, and proper citation of data sources.
Alinaghi, N., & Reed, W. R. (2021). Taxes and economic growth in OECD countries: A meta-analysis. Public Finance Review, 49(1). https://doi.org/10.1177/1091142120961
Balassone, F., & Franco, D. (2000). Assessing Fiscal Sustainability: A Review of Methods with a View to EMU. Fiscal Sustainability Conference, p. 21. http://dx.doi.org/10.2139/ssrn.2109377
Bexheti, A., Sadiku, L., Sadiku, M. (2020). The Impact of Public Debt on Economic Growth: Empirical Analyses for Western Balkan Countries. In: Janowicz-Lomott, M., Łyskawa, K., Polychronidou, P., Karasavvoglou, A. (eds) Economic and Financial Challenges for Balkan and Eastern European Countries. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-39927-6_2
Burrnside, C. (2005). Fiscal Sustainability in Theory and Practice: A Handbook. World Bank Publications. https://openknowledge.worldbank.org/server/api/core/bitstreams/8d67f968-cda6-59eb-832d-4d9a5b20d172/content
European Commission (2009). Sustainability Report 2009. EUROPEAN ECONOMY 9|2009. https://ec.europa.eu/economy_finance/publications/pages/publication15998_en.pdf
Fetai, B., Avdimetaj, K., Bexheti, A., Malaj, A. (2020). Threshold effect of public debt on economic growth: An empirical analysis in the European transition countries. Journal of Economics and Business, 38(2), 381-406. https://doi.org/10.18045/zbefri.2020.2.381
Fetai, B., Bexheti, A., Alili-Sulejmani, L. & Ramadani, V. (2021). Does fiscal policy accelerate economic growth in transition economies: the case of Republic of North Macedonia? International Journal of Public Sector Performance Management, 7(1), 87-97. https://doi.org/10.1504/IJPSPM.2021.111969
Fitriyah, A., & Nuraini, F. (2025). Tax Revenue and Economic Growth in Developing Countries: A Narrative Synthesis of Empirical Evidence. Sinergi International Journal of Education, 3(1), 58-69. https://doi.org/10.61194/economics.v3i1.643
Gemmell, N., Kneller, R. & Sanz, I. (2014), The growth effects of tax rates in the OECD. Canadian Journal of Economics/Revue canadienne d'économique, 47, 1217-1255. https://doi.org/10.1111/caje.12105
Heady, Ch., Johansson, Å., Jens, A., Brys, B., & Vartia, L. (2009). Tax policy for economic recovery and growth. School of Economics Discussion Papers, No. 09, 25, University of Kent, School of Economics, Canterbury. https://www.econstor.eu/bitstream/10419/50575/1/619013052.pdf
Hacker, S. R., & Hatemi-J, A. (2008). Optimal lag-length choice in stable and unstable VAR models under situations of homoscedasticity and ARCH. Journal of Applied Statistics, 35(6), 601–615. https://doi.org/10.1080/02664760801920473
Hamilton, J. D. (1994). Time Series Analysis. Princeton University Press, Princeton. https://doi.org/10.1515/9780691218632
Hatemi-J, A. (2004). Multivariate tests for autocorrelation in the stable and unstable VAR models. Economic Modelling. 21(4), 661–683. https://doi.org/10.1016/j.econmod.2003.09.005
Hatemi-J, A., & S. Hacker, R. (2009). Can the LR test be helpful in choosing the optimal lag order in the VAR model when information criteria suggest different lag orders? Applied Economics, 41(9), 1121–1125. https://doi.org/10.1080/00036840601019273
Južnik Rotar, L. (2025). Fiscal sustainability and economic growth in the light of new economic governance. Technological and Economic Development of Economy, 31(3), 663–684. https://doi.org/10.3846/tede.2025.22499
Kawano, L., Olson, J. S., Slemrod, J., & Hsieh, M. H. (2025). How taxes affect growth: evidence from cross-country panel data. International Tax and Public Finance. https://doi.org/10.1007/s10797-025-09901-z
Krejdl, A. (2006). Fiscal Sustainability - Definition, Indicators and Assessment of Czech Public Finance Sustainability. Working Papers 2006/3, Czech National Bank, Research and Statistics Department. https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_ publications/cnb_wp/cnbwp_2006_03.pdf
Merza, E., & Khatatbeh, I. N. (2025). The Effect of Tax and Public Debt on Economic Growth: Worldwide Cross-Sectional Evidence. Sage Open, 15(4). https://doi.org/10.1177/21582440251397
Nawata, K. (2021) The Random Walk and Trend Stationary Models with an Analysis of the US Real GDP: Can We Distinguish between the Two Models? Open Journal of Statistics, 11, 213-229. https://doi.org/10.4236/ojs.2021.111011
OECD (2024), Tax Policy Reforms 2024: OECD and Selected Partner Economies, OECD Publishing, Paris. https://doi.org/10.1787/c3686f5e-en
OECD (2022), Tax Policy Reforms 2022: OECD and Selected Partner Economies, OECD Publishing, Paris. https://doi.org/10.1787/067c593d-en
Stoilova, D. (2024). Tax structure and economic growth: Evidence from EU countries. Journal of Tax Reform, 10(2), 240-257. https://taxreform.ru/en/archive/journal/301/article/2734/
Zellner, A., Keuzenkamp, H. A., McAleer, M. (2002). Simplicity, Inference and Modelling: Keeping it Sophisticatedly Simple. Cambridge University Press. ISBN 978-1-139-43238-2. https://books.google.ro/books?id=-YdbBN-O-JAC&redir_esc=y
World Bank. 2023. Western Balkans Regular Economic Report No.24, Fall 2023: Toward Sustainable Growth. https://doi.org/10.1596/40496