6. Evolution of the tax burden (2000-21)
The chapter presents the evolution of the tax burdens on labour income between 2000 and 2021. The chapter contains Tables 6.1 to 6.24, which are grouped by tax measures for the eight household types. 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 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).
This chapter presents the evolution of the tax burden for the eight household types depicted by the Taxing Wages models over the period from 2000 to 2021. Tables 6.1 to 6.24, titled “Tables showing income taxes, social security contributions and cash benefits”, correspond to a tax burden measure for a particular household type. The discussion focuses on the main observable trends over the period and highlights important year-on-year changes.1
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) all declined between 2000 and 2021 for each of the selected household types.
The reductions over the period in the OECD average tax wedge ranged from 1.3 percentage points for single workers earning 167% of the average wage (AW) to 4.6 percentage points for single parents earning 67% of the AW.
The decrease in the OECD average personal income tax burden ranged from 0.8 percentage point for single workers earning the AW to 2.0 percentage points for single parents earning 67% of the AW.
The OECD net personal average tax burden also declined for all household types in the period considered. The reduction ranged from 0.5 percentage points for single workers earning 167% of the AW to 3.4 percentage points (for single parents earning 67% of the AW).
Tax wedge
Table 6.1 to Table 6.8 track the evolution of the average tax wedge in OECD countries between 2000 and 2021. Nineteen OECD countries observed a reduction of more than 5 percentage points for at least one household type: Australia, Belgium, Canada, Chile, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Israel, Ireland, Lithuania, the Netherlands, New Zealand, Poland, Sweden and the United States.
The largest decline was observed in Chile, where the single parent benefited from a reduction in the tax wedge of 30.3 percentage points. In Chile, all types of married couple with children also experienced decreases in the tax wedge that exceeded 10 percentage points (24.8 percentage points for the one-earner married couple, 15.2 percentage points for the two-earner married couple earning 167% of the AW, and 12.4 percentage points for the two-earner married couple earning 200% of the AW). In Poland, large decreases in the tax wedge were observed for the household types with children: 28.3 percentage points for the single parent, 19.0 percentage points for the one-earner couple on the AW, 13.1 percentage points for the two-earner couple with total wage earnings at 167% of the AW and 11.6 percentage points for the two-earner couple with total wage earnings at 200% of the AW. In Lithuania, the tax wedge also decreased by more than 10 percentage points for all household types with children: by 24.9 percentage points for the single parent, by 22.1 percentage points for the one-earner married couple, by 13.6 percentage points for the married couple earning 167% of the AW and by 12.5 percentage points for the married couple earning 200% 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 (by 14.7 percentage points), for the single parent (by 21.8 percentage points) and for the married couple with two children earning 167% of the AW (by 10.7 percentage points).
Reductions of more than 10 percentage points in the tax wedge for at least one household type were also observed in France, Greece, Hungary, New Zealand and the United States. In France, the tax wedge decreased by 13.9 percentage points for the single parent on 67% of the AW. In Greece, the tax wedge decreased by 10.6 percentage points for the single parent earning 67% of the AW. In Hungary, there were reductions of more than 10 percentage points for seven out of the eight household types. The largest was for the single parent earning 67% of the AW (16.0 percentage points). In New Zealand, the tax wedge decreased by 13.3 percentage points for the single parent on 67% of the AW. In the United States, the tax wedge decreased by more than 10 percentage points for the single parent earning 67% of the AW and the one-earner married couple (by 10.8 and 12.7 percentage points, respectively).
In contrast, between 2000 and 2021, there were increases in the tax wedge of more than 5 percentage points for at least one household type in six countries: Iceland, Korea, Luxembourg, Mexico, Norway and the United Kingdom. The largest increase was in Iceland, where the tax wedge rose by 10.6 percentage points for the single parent on 67% of the AW and by 7.0 percentage points for the one-earner couple on the AW with two children. In Korea, the tax wedge increased for the single worker earning 67%,100% and 167% of the AW (by 5.4,7.2 and 6.1 percentage points, respectively), for the two-earner married couple earning 200% of the AW with two children (by 5.7 percentage points) and the two-earner married couple earning 167% of the AW without children (by 6.6 percentage points). In Luxembourg, the tax wedge increased for all household types with children, by between 7.9 percentage points for the one-earner married couple and 8.5 percentage points for the single parent. In Mexico, the average tax wedge increased for seven of the eight household types. It increased most for single worker earning 67% of the AW with and without children, by 9.1 percentage points. In Norway, it increased by 6.7 percentage points for the single parent. In the United Kingdom, the tax wedge also increased for the single parent by 5.7 percentage points.
Between 2000 and 2021, the tax wedge decreased for all household types in fourteen OECD countries (Australia, Belgium, Canada, Denmark, Finland, Germany, Greece, Hungary, Lithuania, the Netherlands, Poland, Sweden, Switzerland and the United States), while it increased across all household types in five countries (Costa Rica, Japan, Korea, Luxembourg and Mexico).
Average personal income tax rate
Between 2000 and 2021, the average personal income tax burden (Table 6.9 to Table 6.16) decreased for all eight household types in thirteen OECD countries: Belgium, Canada, the Czech Republic, Estonia, Finland, Germany, Hungary, Israel, Latvia, Lithuania, Slovenia, Sweden and the United States. 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 were observed in Hungary, where there were decreases exceeding 10 percentage points for three of the household types: of 15.3 percentage points for the single worker earning 167% of the AW, 12.3 percentage points for the one-earner married couple earning the AW with children, and 10.2 percentage points for the two-earner couple with total wage earnings at 200% of the AW with two children. In the Czech Republic, the average personal income tax rate decreased by more than 10 percentage points for the single parent and the one-earner married couple (by 14.9 percentage points and 12.6 percentage points, respectively). In Estonia, the average personal income tax rate decreased for the single worker earning 67% of the AW, by 10.0 percentage points for the worker without children and by 13.0 percentage points for the single parent. In Sweden, decreases of between 9.2 and 9.8 percentage points were observed for most household types, the exceptions being the single taxpayer earning 67% of the AW, with and without children (reduction of 10.7 percentage points). In Lithuania, the average personal income tax rates decreased by between 8.5 and 9.0 percentage points for most of the household types, the exception being the single parent on 67% of the AW (2.5 percentage points). In Finland, it decreased by between 6.5 and 8.3 percentage points for the eight household types. In Israel, the average personal income tax rate decreased by 5.1 to 6.6 percentage points for most of the household types, the exception being the single parent at 67% of the AW, which experienced a reduction of 1.1 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 Luxembourg, the average personal tax rate increased by between 5.3 and 6.2 percentage points for all households with children. In Mexico, the increases ranged from 7.9 to 9.7 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 (5.8 percentage points).
Sixteen other OECD member countries recorded both reductions and increases in the average personal income tax among the household types: Australia, Austria, France, Iceland, Ireland, Italy, the Netherlands, Norway, New Zealand, Poland, Portugal, the Slovak Republic, Spain, Switzerland, Turkey and the United Kingdom. Changes of more than 5 percentage points were observed among those countries. In Iceland, the average tax rate increased by 5.7 percentage points for the one-earner married couple. In the Netherlands, the average tax rate increased by more than 5 percentage points for three household types: the single worker earning 100% of the AW (6.0 percentage points), the one-earner married couple (10.6 percentage points) and the two-earner married couple earning 200% of the AW (by 5.3 percentage points). In Portugal, the average tax rate increased for the single worker earning 67% and 100% of the AW, by 5.4 and 5.6 percentage points, and for the two-earner married couple without children earning 167% of the AW, by 5.5 percentage points. The average personal income tax rate decreased by more than five percentage points in three countries: in Australia, it decreased by 5.5 percentage points for the single worker earning 167% of the AW, by 7.3 percentage points in Austria for the single parent and by 5.5 percentage points in the Slovak Republic for the one-earner married couple.
In Chile and Costa Rica, the average income tax rates stayed constant for most household types as they did not pay personal income taxes between 2000 and 2021, the exception being the single worker earning 167% of the AW, for whom the average personal tax rate decreased by 0.05 percentage points in Chile and increased by 2.3 percentage points in Costa Rica. In Colombia, there were no changes for the eight household types between 2000 and 2021 as no personal income taxes were levied at their earnings level.
Net personal average tax rate
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 2021 for all eight household types in eight OECD countries: Australia, Belgium, Denmark, Germany, the Netherlands, Poland, Sweden and the United States. The most significant reductions were observed in Poland, where the net personal average tax rate fell by 32.7 percentage points for the single parent earning 67% of the AW, followed by the one-earner couple on the AW with two children (21.9 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 21.6 percentage points and 14.2 percentage points, respectively) and for the two-earner couple with total earnings at 167% of the AW with two children (by 11.5 percentage points). Decreases exceeding 10 percentage points were also observed in Sweden for the single worker earning 67% of the AW (by 10.7 percentage points) and in the United States for the single parent and the one-earner married couple (by 11.2 percentage points and 13.4 percentage points, respectively).
In Australia, the net personal average tax rate decreased for the single worker earning 167% of the AW by 5.5 percentage points while it decreased by between 1.9 and 4.2 percentage points for the other seven household types. In Belgium, decreases larger than 5 percentage points were observed for the single parent and the two-earner married couple earning 167% of the AW without children (5.4 percentage points for both). In Germany, four of the eight household types experienced decreases larger than 5 percentage points: the net average tax rate decreased for the single worker earning 100% of the AW as well as for the two-earner married couple with two children earning 200% of the AW by 5.5 percentage points; it also decreased by 6.1 percentage points for the single worker earning 167% of the AW and by 5.1 percentage points for the two-earner married couple earning 167% of the AW with two children. In Denmark, decreases exceeded 5 percentage points in five of the eight household types: the net personal average tax rate decreased by 5.5 percentage points for the married couple earning 167% of the AW with and without children, by 6.0 percentage points for the single worker earning 100% of the AW, by 6.2 percentage point for the single parent, and by 8.2 percentage point for the single worker earning 167% of the AW.
In contrast, the net personal average tax rate increased across all household types in four OECD countries: Costa Rica, Japan, Luxembourg and Mexico. Two of those countries experienced increases of more than 5 percentage points. The largest change was in Mexico where it increased by 9.7 percentage points for the single worker on 67% of the AW, with and without children. In Luxembourg, net personal average tax rates increased by between 6.7 and 7.2 percentage points for all household types with children while increasing by less than five percentage points in the remaining three.
Twenty-three other OECD member countries recorded both reductions and increases in the net personal average tax rate among the household types: Austria, the Czech Republic, Estonia, Finland, France, Greece, Hungary, Iceland, Ireland, Israel, Italy, Korea, Latvia, Lithuania, New Zealand, Norway, Portugal, the Slovak Republic, Slovenia, Spain, Switzerland, Turkey and the United Kingdom. There was a significant decrease in France, where the net personal average tax rate fell by 16.5 percentage points for the single parent on 67% of the AW. For this household type, there were also decreases exceeding 10 percentage points in Ireland (10.8 percentage points) and New Zealand (13.3 percentage points). In Hungary, the net personal average tax rate decreased by 9.3 percentage points for the single worker on 167% of the AW; in Greece, it fell by 9.5 percentage points and in Lithuania by 7.3 percentage points for the single parent. In Estonia, the net personal average tax rate decreased by 8.4 percentage points for the single worker earning 67% of the AW, and in Isreal it fell by 5.9 percentage points for the same household type, as well as by 6.4 pecentage points for the single worker at 100% of the AW and by 5.3 percentage points for the single worker earning 167% of the AW.
The one-earner married couple experienced a decrease in the net personal average tax rates in Estonia (5.7 percentage points), Greece (5.6 percentage points), Lithuania (6.5 percentage points) and New Zealand (7.1 percentage points). For the two-earner married couple earning 167% of the AW with two children, the rate decreased by 6.7 percentage points in the Czech Republic and by 7.8 percentage points in Estonia. In both countries, the rate also decreased for the two-earner married couple earning 200% of the AW with two children, decreasing by 7.8 percentage points and 6.1 percentage points, respectively. For the two-earner married couple earning 167% of the AW without children, the net personal average tax rate decreased by 6.3 percentage points in Estonia and by 6.0 percentage points in Israel.
In contrast, increases larger than 5 percentage points for the single parent earning 67% of the average wage occurred in the Czech Republic (5.8 percentage points), the United Kingdom (5.7 percentage points), Hungary (5.4 percentage points), Iceland (10.0 percentage points), Norway (7.4 percentage points), the Slovak Republic (8.3 percentage points) and Slovenia (5.7 percentage points). The tax rate also increased significantly for the single worker earning 67% of the AW in Lithuania and Portugal (by 8.0 percentage points and 5.4 percentage points, respectively), for the single worker earning 100% of the AW in Korea (6.3 percentage points), Lithuania (7.7 percentage points) and Portugal (5.6 percentage points). It also increased by more than 5 percentage points for the one-earner married family in Iceland (6.2 percentage points) and Slovenia (8.0 percentage points), the two-earner married couple with two children earning 167% of the AW in Portugal (5.2 percentage points) and without children in Korea (5.6 percentage points), Lithuania (7.9 percentage points) and Portugal (5.5 percentage points).
Progressivity
The degree of progressivity of countries’ 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 2021, the higher paid worker always pays a higher percentage of income in personal income tax than the lower paid worker. In Hungary, the level of tax burden was the same for both types of worker from 2013 onwards. In Mexico, the personal income tax was negative for the single persons earning 67% of the AW from 2000 to 2010 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 57% of the tax burden of the person earning 167% of the AW in 2000 and 52% in 2021. Comparing the situation in each OECD country, personal income taxes have become more progressive in twenty countries: Australia, Belgium, Canada, Czech Republic, Germany, Estonia, Finland, France, Ireland, Israel, Italy, Lithuania, Latvia, Netherlands, Norway, New Zealand, Sweden, Switzerland, Turkey and the United Kingdom. The most significant changes were in Estonia, where the tax burden on the lower paid worker as a share of the tax burden of the higher paid worker fell from 85.7% in 2017 to 42.2% in 2018, and in Italy, where the corresponding measure decreased gradually from 60.2% in 2000 to 42.9% in 2021.
Between 2000 and 2021, personal income taxes became slightly less progressive (using this measure) in fifteen OECD countries: Austria, Denmark, Greece, Hungary, Iceland, Japan, Korea, Luxembourg, Mexico, Poland, Portugal, the Slovak Republic, Slovenia, Spain and the United States. The most significant changes occurred in Hungary, where the ratio rose from 58.0% of the higher-paid person’s tax burden in 2000 to 100% from 2013 onwards, and in Iceland, where it rose from 54.6% in 2000 to 70.7% in 2021.
The tax burden ratio remained at the same level in Chile and Colombia between 2000 and 2021. In Chile and Costa Rica, the lower paid worker on 67% of the AW did not pay personal income tax between 2000 and 2021. In Colombia, no personal income taxes were levied on earnings at either 67% or 167% of the AW between 2000 and 2021.
Families
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 10.2% of gross income in 2000 and 11.5% in 2021.
Between 2000 and 2021, the savings for the one-earner married couple increased in twenty countries and declined in eighteen. No tax savings are observed for Colombia, as the households do not pay income tax at this level of income, and for Mexico, as the tax burden is the same for the two household types. There were four countries where the tax savings increased by more than 5 percentage points: in the United States, increasing by 11 percentage points from 10.5% to 21.5% of gross income; in Poland, increasing by 18.3 percentage points from 5.7% to 23.9% of gross income; in Lithuania, increasing by 14.3 percentage points from 0% to 14.3% of gross income; and in Chile, increasing by 24.8 percentage points from 0.7% to 25.5% of gross income. There were corresponding reductions of more than 5 percentage points in Norway, with a reduction in the tax savings by 7.6 percentage points from 11.4% to 3.8%, and in Slovenia, where the tax savings decreased by 9.0 percentage points, from 25.4% to 16.4% 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 2021 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
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).
Table 6.25 and Table 6.26 show the average gross and net earnings of a single individual between 2000 and 2021 in in national currencies and in US dollars using purchasing power parities of national currencies.
Note
← 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.