6. Evolution of the tax burden (2000-20)
The chapter presents the evolution of the tax burdens on labour income between 2000 and 2020. The chapter contains Tables 6.1 to 6.24 that are grouped by tax measures for the eight household types: Tables 6.1 to 6.8 containing the (average) tax wedge comprising income taxes plus employee and employer social security contributions (including any applicable payroll taxes) less cash benefits; Tables 6.9 to 6.16 providing the (average) burden of personal income taxes; and the Table 6.17 to 6.24 depicting the (average) burden of income taxes plus employee social security contributions less cash benefits (net personal average tax rates).
The evolution of the tax burden for the eight household types over the period 2000 to 2020 is presented in Tables 6.1 to 6.24 in the last section of this chapter titled “Tables showing income taxes, social security contributions and cash benefits”. Each of the Tables 6.1 to 6.24 corresponds to a tax burden measure for a particular household type.
The discussion focuses on the main observable trends over the period and highlights selected important year-to-year changes1.
The OECD average tax wedge, the personal income tax burden and the net tax burden (personal income tax plus social security contributions less cash benefits) have all declined between 2000 and 2020 for each of the selected household types.
The reductions over the period in the OECD average tax wedge ranged from 1.6 percentage points (for single workers earning 167% of the AW) to 5.4 percentage points (for single parents earning 67% of the AW).
The decrease in the OECD average personal income tax burden ranged from 1.0 percentage point (for single workers earning the AW) to 2.6 percentage points (for single parents earning 67% of the AW).
The OECD net personal average tax burden has also declined for all household types in the period considered. The reduction ranged from 0.7 percentage points (for single workers earning 167% of the AW) to 4.3 percentage points (for single parents earning 67% of the AW).
Focusing on the overall (average) tax wedge (Table 6.1 to Table 6.8), twenty-one OECD countries had a reduction of more than 5 percentage points between 2000 and 2020 for at least one household type – Austria, Belgium, Canada, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Israel, Italy, Lithuania, the Netherlands, New Zealand, Poland, Slovenia, Sweden, the United Kingdom and the United States.
The largest decline is observed in Poland where the single parent benefited from a reduction in the tax wedge of 33.2 percentage points. In Poland, the one-earner couple on the AW and the two-earner couples with total wage earnings at 167% of the AW and at 200% of the AW (with each of these three household types having two children), also experienced large decreases in the tax wedge that exceeded 10 percentage points (i.e. 20.1 percentage points, 13.8 percentage points and 12.2 percentage points respectively). In Lithuania, large decreases in the tax wedge are also observed for the household types with children – 30.2 percentage points for the single parent, 25.6 percentage points for the one-earner couple on the AW, 15.2 percentage points for the two-earner couple with total wage earnings at 167% of the AW and 13.8 percentage points for the two-earner couple with total wage earnings at 200% of the AW. In Lithuania, those declines derive from measures in response to the COVID-19 crisis; i.e. the tax-exempt amount was increased and a one-off child benefit payment was made to families in 2020. Reductions of more than 10 percentage points in the tax wedge for at least one household type are also observed in Belgium, Canada, France, Hungary, Ireland, the Netherlands and New Zealand.
In Belgium, the tax wedge decreased by 10.9 percentage points for the single parent on 67% of the AW. In Canada, the tax wedge decreased by 17.6 percentage points for the single parent earning 67% of the AW and by 13.0 percentage points for the one-earner married couple on the AW with two children. In France, the tax wedge declined by 17.2 percentage points for the single parent at 67% of the AW. In Hungary, there were reductions of more than 10 percentage points for six out of the eight household types. The largest decreases were for the single worker earning 167% of the AW (15.5 percentage points) and the one-earner married couple, with two children, earning the AW (13.8 percentage points). In Ireland, the tax wedge decreased by 15.3 percentage points for the single parent on 67% of the AW. In the Netherlands, the tax wedge decreased by more than 10 percentage points for the single worker earning 67% of the AW with or without children, by 20.4 percentage points and by 13.3 percentage points respectively. In New Zealand, only the single parent earning 67% of the AW benefited from a reduction in the tax wedge exceeding 10 percentage points (15.1 percentage points).
In contrast, between 2000 and 2020, there were increases in the tax wedge of more than 5 percentage points for at least one household type in six countries – the Czech Republic, Iceland, Korea, Mexico, Norway and Turkey. The largest increase was in Iceland where the tax wedge raised by 10.2 percentage points for the single parent on 67% of the AW and also by 5.5 for the one-earner couple on the AW with two children.. In the Czech Republic, it increased by 9.2 percentage points for the single parent on 67% of the AW. In Mexico, seven of the household types experienced increases between 7.5 and 8.9 percentage points. Only the single worker on 167% of the AW had a tax wedge increased by less than 5 percentage points (3.7 percentage points). In Turkey, the single worker earning 167% of the AW had the tax wedge increased by 8.0 percentage points. In Korea, there were increases by between 5.0 and 6.9 percentage points for the household types without children. In Norway, it increased by 6.0 percentage points for the single parent on 67% of the AW.
The tax wedge has decreased for all household types in sixteen OECD countries (Australia, Belgium, Canada, Denmark, Estonia, Finland, Germany, Hungary, Ireland, Israel, Latvia, Lithuania, Poland, Sweden, Switzerland and the United States), while it has increased across all household types in three countries (Japan, Luxembourg and Mexico).
Between 2000 and 2020, the average personal income tax burden (Table 6.9 to Table 6.16) decreased for the eight household types in fifteen of the OECD countries: Belgium, Canada, Estonia, Finland, Germany, Hungary, Ireland, Israel, Latvia, Lithuania, Slovenia, Sweden, Switzerland, Turkey and the United Kingdom. Among those countries, there were decreases of more than 5 percentage points in the personal income tax rates. The most significant reductions affecting most of the household types are noted in Hungary where there were decreases exceeding 10 percentage points for three of the household types; i.e. by 15.3 percentage points for the single worker earning 167% of the AW, 12.9 percentage points for the one-earner married couple earning the AW with children and 10.6 percentage points for the two-earner couple with total wage earnings at 200% of the AW with two children. . In Estonia, the average personal income tax rate decreased by between 8.0 and 14.3 percentage points for seven of the household types. The largest decrease was observed for the single parent on 67% of the AW. The only household type with a decrease that was lower than 5 percentage points was the single worker on 167% of the AW (3.9 percentage points). In Sweden, most of the household types had decreases of between 9.1 and 9.8 percentage points, the exception being the single taxpayer earning 167% of the AW (reduction of 6.4 percentage points). In Lithuania, the average personal income tax rates decreased by between 9.4 and 9.6 percentage points for most of the household types, the exception being the single parent on 67% of the AW (3.7 percentage points). In the United Kingdom, the single parent on 67% of the AW experienced the largest decrease (9.4 percentage points). In Finland, it decreased by between 6.2 and 8.5 percentage points over the eight household types. In Israel, the average personal income tax rate decreased by 6.4 to 8.2 percentage points for most of the household types, the exception being the single parent at 67% of the AW who experienced a reduction of 2.9 percentage points. Other decreases of more than 5 percentage points are observed in Belgium for six of the household types (up to 7.0 percentage points) and Latvia for the single parent earning 67% of the AW (5.4 percentage points).
At the other extreme, the average personal income tax rate increased across all the eight household types in six OECD countries: Denmark, Greece, Japan, Korea, Mexico and the Netherlands. Among those countries, there were increases of more than 5 percentage points. In the Netherlands, there were increases of 11.2 percentage points for the one-earner married couple on the AW with two children, 6.7 percentage points for the single worker earning the AW and 6.0 percentage points for the two-earner couple with total earnings at 200% of the AW with two children. In Mexico the increases ranged from 5.9 to 9.4 percentage points over the eight household types. The average personal income tax rate increased by more than 5 percentage points in Denmark for the one-earner married couple on the AW with two children (5.5 percentage points).
There were fifteen other OECD member countries with both reductions and increases in the average personal income tax among the household types: Australia, Austria, Chile, the Czech Republic, France, Iceland, Italy, Luxembourg, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain and the United States. Significant changes of more than 5 percentage points are observed among those countries. In the Czech Republic, there were reductions of 9.7 percentage points for the single parent on 67% of the AW and 8.5 percentage points for the one-earner married couple on the AW with children. In Austria and Italy, the personal income tax rate decreased by more than 5 percentage points for the single parent on 67% of the AW (8.3 percentage points and 6.2 percentage points respectively). In contrast, in Portugal, it increased by 5.4 percentage for the single worker on 167% of the AW.
In Chile, the average income tax rates stayed constant for most of the household types as they did not pay personal income taxes between 2000 and 2020. There were small changes of 0.032 percentage points or less for the household types that paid income taxes ; i.e. the single worker on the AW (+0.03 percentage points), the two-earner couple with total earnings at 167% of the AW without children (+0.02 percentage points) and the single worker on 167% of the AW (-0.03 percentage points). In Colombia, there were no changes for the eight household types between 2000 and 2020 as no personal income taxes were levied at their levels of earnings.
The net personal average tax rate takes into account personal income taxes and employee social security contributions as well as cash benefits (Table 6.17 to Table 6.24). It decreased between 2000 and 2020 for the eight household types in thirteen OECD countries: Australia, Belgium, Canada, Denmark, Estonia, Germany, Ireland, Israel, the Netherlands, Poland, Sweden, Switzerland and the United States. Among those countries, there were decreases of more than 5 percentage points. The most significant reductions are observed in Poland, where the net personal average tax rate fell by 38.5 percentage points for the single parent earning 67% of the AW, followed by the one-earner couple on the AW with two children (23.2 percentage points). In the Netherlands, the decline in the net personal average tax rate exceeded 10 percentage points for the single worker on 67% of the AW, with or without children (by 20.0 percentage points and 12.6 percentage points respectively) and for the two-earner couple with total earnings at 167% of the AW with two children (10.2 percentage points). There were decreases exceeding 10 percentage points also in Canada for the single parent on 67% of the AW (18.3 percentage points) and the one-earner married couple on the AW with children (13.4 percentage points) and in Ireland for the single parent on 67% of the AW (16.1 percentage points). In Sweden, reductions of more than 5 percentage points in net personal average tax rates are observed over the eight household types. Furthermore, seven of them had reductions exceeding 8 percentage points. It decreased the most for the single worker earning 67% of the AW without children (9.8 percentage points), for the two-earner couple with total earnings at 167% of the AW without children (9.4 percentage points) and for the single average worker (9.1 percentage points). In Estonia, the net personal average tax rate decreased the most for the two-earner couple with total earnings at 167% of the AW with two children (9.7 percentage points), the second largest decrease was observed for the single worker on 67% of the AW without children (9.4 percentage points). In Belgium, it declined by more than 5 percentage points for six out of the eight household types; the largest decrease being for the single parent on 67% of the AW (9.2 percentage points). In Denmark, there were decreases exceeding 5 percentage points for seven out of the eight household types. The single worker on 167% of the AW experienced the largest decrease (8.5 percentage points). In Israel reductions ranging from 6.1 to 8.1 percentage points are observed for all but one household type, the exception being the single parent on 67% of the AW (reduction of 0.3 percentage point). In the United States, the net personal average tax rate decreased by more than 5 percentage points for the one-earner couple on the AW with two children (7.4 percentage points) and the two-earner couples on 167% of the AW with two children (5.8 percentage points). Finally, in Germany, a decrease of more than 5 percentage points was observed for the single worker on 167% of the AW (5.4 percentage points).
In contrast, the net personal average tax rate increased across all household types in three OECD countries: Japan, Mexico and the Slovak Republic. Two of those countries experienced increases of more than 5 percentage points. The largest change was in the Slovak Republic where it increased by 9.5 percentage points for the single parent on 67% of the AW. In Mexico, net personal average tax rates increased by between 5.3 and 9.4 percentage points over the eight household types.
There were twenty-one other OECD member countries with both reductions or increases in the net personal average tax rate among the household types: Austria, Chile, Colombia, the Czech Republic, Finland, France, Greece, Hungary, Iceland, Italy, Korea, Latvia, Lithuania, Luxembourg, New Zealand, Norway, Portugal, Slovenia, Spain, Turkey and the United Kingdom. Among those countries, changes of more than 5 percentage points are observed. There was a significant decrease in France where the net personal average tax rate fell by 19.2 percentage points for the single parent on 67% of the AW. For the latter household type, there were also decreases exceeding 10 percentage points in New Zealand (15.1 percentage points) and in Lithuania (12.7 percentage points). It also declined by 10.1 percentage points for the one-earner couple on AW with two children in Lithuania. In Hungary, the net personal average tax rate decreased by 9.3 percentage points for the single worker on 167% of the AW. Reductions of more than 5 percentage points are observed for single parents on 67% of the AW in the United Kingdom (7.0 percentage points), Greece and Italy (both by 5.6 percentage points). In Finland, the net personal average tax rate decreased by 5.5 percentage points for the single worker on 67% of the AW without children. In contrast, there were significant increases in the net personal average tax rate in the Czech Republic and in Iceland for the single parent on 67% of the AW (by 13.4 and 9.3 respectively). In Lithuania, the increases were between 6.9 and 7.1 percentage points for the household types without children. There were increases of more than 5 percentage points for the single parent on 67% of the AW in Norway (6.6 percentage points), for the single worker on 167% of the AW in Korea (5.5 percentage points), Portugal (5.4 percentage points) and Turkey (6.0 percentage points). In Korea, the net personal average tax rate also increased by more than 5 percentage points for the single average worker (6.0 percentage points).
The degree of progressivity of the personal income tax system can be assessed by comparing the burden faced by single workers earning 67% of the AW with that faced by their counterparts earning 167% of the AW. Hence Table 6.9 is compared with Table 6.11. For all OECD countries (except Hungary) and for all years between 2000 and 2020 the higher paid worker always pays a higher percentage of income in personal income tax than the lower paid worker. In Hungary, the exceptions are that the levels of tax burden are the same for both workers from 2013 onwards. In Mexico, from 2000 to 2010, the personal income tax was negative for the single persons earning 67% of the AW due to non-wastable tax credits.
On average, the progressivity of personal income taxes has increased in OECD countries. On average (excluding Mexico), the single person earning 67% of the AW paid 52% of the tax burden of the person earning 167% of the AW in 2000 and 49% in 2020.
Comparing the situation in each OECD country, personal income taxes have become more progressive in nineteen countries: Belgium, Canada, Estonia, Finland, France, Germany, Ireland, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, New Zealand, Norway, Sweden, Switzerland, Turkey and the United Kingdom. The most significant changes were in Estonia where the tax burden on lower paid worker as a share of the tax burden of the higher paid worker fell from 86% in 2017 to 42% in 2018 and in Italy where the corresponding measure decreased gradually from 60% in 2000 to 39% in 2020.
Between 2000 and 2020, personal income taxes became slightly less progressive (using this measure) in sixteen OECD countries: Australia, Austria, the Czech Republic, Denmark, Greece, Hungary, Iceland, Korea, Mexico, the Netherlands, Poland, Portugal, the Slovak Republic, Slovenia, Spain and the United States. The most significant changes occurred in Hungary where the ratio rose from about 58% of the higher-paid person’s tax burden in 2000 to 100% from 2013 onwards and in Iceland where it rose from 55% in 2000 to 72% in 2020.
The tax burden ratio remained at the same level in Chile and Colombia between 2000 and 2020. In Chile, the lower paid worker on 67% of the AW did not pay personal income tax between 2000 and 2020. In Colombia, no personal income taxes were levied on earnings at either 67% or 167% of the AW between 2000 and 2020.
The results presented in Table 6.21 and Table 6.18 can be used to compare the net tax burdens (personal income tax plus employee social security contributions less cash benefits) faced by a one-earner married couple earning the AW with two children, and the single worker without children at the same income level. The OECD average tax savings for the married couple compared with the single person represented 10.5% of gross income in 2000 and 12.0% in 2020.
Between 2000 and 2020, the savings for the one-earner married couple increased in eighteen countries and declined in eighteen others. No tax savings are observed for Mexico, as the tax burden is the same for the two household types. There were five countries where the tax savings have increased by more than 5 percentage points: in Poland increasing by 19.5 percentage points from 5.7% to 25.2% of gross income, in Lithuania increasing by 17.1 percentage points from 0% to 17.1% of gross income, in Canada increasing by 11.5 percentage points from 10.9% to 22.4% of gross income, in New Zealand increasing by 8.3 percentage points from 5.8% to 14.1% of gross income and in Portugal increasing by 5.2 percentage points from 8.8% to 14.0% of gross income. There were corresponding reductions of more than 5 percentage points in Norway with a reduction in the tax savings by 7.4 percentage points from 11.4% to 4.0% and in Slovenia where the tax savings decreased by 5.2 percentage points from 25.4% to 20.2% of gross income.
The evolution of the income taxes, social security contributions and cash benefits for the eight household types across the OECD over the period 2000 to 2020 is presented in Tables 6.1 to 6.24.
Tables 6.1 to 6.8 contain the (average) tax wedge comprising income taxes plus employee and employer social security contributions (including any applicable payroll taxes) less cash benefits,
Tables 6.9 to 6.16 provide the (average) burden of personal income taxes, and the
Tables 6.17 to 6.24 depict the (average) burden of income taxes plus employee social security contributions less cash benefits (net personal average tax rates).
Tables 6.25 and 6.26 show the average gross and net earnings of a single individual between 2000 and 2020 in US dollar using purchasing power parities of national currencies and in national currencies.
Notes
← 1. Tables 6.1 to 6.24 show figures rounded to the first decimal. Due to rounding, changes in percentage points that are presented in the text may differ by one-tenth of a percentage point relative to those in the tables.
← 2. Tables 6.1 to 6.24 show figures rounded to the first decimal. The text may present figures rounded to two decimal points for accuracy purposes.