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OECD Tax Policy Reviews: Lithuania 2022

image of OECD Tax Policy Reviews: Lithuania 2022

EU Funded Note

This report is part of the OECD Tax Policy Reviews publication series. The Reviews are intended to provide independent, comprehensive and comparative assessments of OECD member and non-member countries’ tax systems as well as concrete recommendations for tax policy reform. This report provides a comprehensive assessment of Lithuania’s tax and benefit system and recommendations for tax reform. It outlines the country's key economic and tax challenges and assesses the effects of taxation on employment. A special focus is given to the taxation of self-employed individuals.

English

Executive summary

Despite a rapid recovery from the pandemic, Lithuania faces several structural demographic, employment and economic challenges. The economy and the labour market in Lithuania have recovered from the pandemic. GDP per capita has grown rapidly since 2019. Labour force participation and employment are high. The unemployment rate is on a downward path. Strong economic performance has contributed to a rising tax-to-GDP ratio. However, the country faces several structural challenges. The share of the population aged over 65 is expected to reach 32% by 2050. The working-age population is shrinking at about 1% per year on average. In addition, a pool of vulnerable individuals are locked-out of the labour market. The share of long-term unemployment is high and many long-term unemployed are unable rather than unwilling to re-enter employment. Poor health, skill mismatches and an educational divide in the country contribute to the employment challenge. Notwithstanding the rapid increases in wages in recent years, including minimum wages, disposable income inequality is among the highest in the OECD, the redistributive role of taxes and transfers is limited and social spending as a share of GDP remains comparatively low.

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