Executive Summary
Effective tax rates on labour income edged up across the OECD in 2023 while inflation remained above historic levels. With tax systems in many OECD countries not fully adjusting to inflation, the average tax wedge1 for all eight household types covered in this Report increased in a majority of countries between 2022 and 2023, driven in most cases by higher income taxes. For the second consecutive year, post-tax incomes at the average wage level declined across a majority of OECD countries.
For the single worker earning the average wage, the OECD average tax wedge in 2023 was 34.8%, an increase of 0.13 percentage points (p.p.) with respect to 2022. This was the second consecutive year in which the tax wedge for this household type has risen, following two years of decline during the COVID-19 pandemic in 2020 and 2021. The tax wedge increased in 23 of the 38 OECD countries between 2022 and 2023, decreased in 13 and stayed the same in two. The increase exceeded one percentage point in Australia (2.14 p.p.), due to growth in nominal earnings and the elimination of a tax relief, and Luxembourg (1.39 p.p.), also due to higher nominal earnings. The decreases in the tax wedge for the single worker earning the average wage were all smaller than one percentage point, ranging from -0.01 p.p. in Canada to -0.98 p.p. in Mexico.
The OECD average tax wedge for the two-earner couple with two children (one earning 100% of the average wage, the other earning 67% thereof) increased by 0.06 p.p. between 2022 and 2023 to 29.5%. For this household type, the tax wedge increased in 21 countries and decreased in 17. The OECD average tax wedge for the couple with one earner and two children increased by 0.08 p.p. between 2022 and 2023 to 25.7%. The difference between the tax wedge for this household type and that of the single worker earning the average wage increased by 0.04 p.p. to 9.1 p.p. between 2022 and 2023.
The only decrease in the average tax wedge between 2022 and 2023 was observed for the single parent of two children earning 67% of the average wage. The tax wedge for this household type decreased by 0.31 p.p. to 16.5% in 2023, increasing in 21 countries and declining in 17. The largest decrease in the tax wedge for this household type – of -13.1 p.p. – occurred in the Slovak Republic and was due to a temporary increase in the child tax credit and an increase in child cash transfers. In 2022, the tax wedge for this household type increased by 1.27 p.p., the largest increase observed for any of the household types that year.
The Report contains a Special Feature on the tax wedge on second earners in OECD countries. This chapter sheds light on how tax policy may affect the incentives facing women when they decide whether and how much to work, in a context of persistent gender-related inequalities in labour outcomes, particularly as concerns the labour force participation of women (who account for over 75% of second earners and two-thirds of part-time workers in most OECD countries). The chapter uses the Taxing Wages models to calculate the effective tax rates on a second earner who takes up employment or increases the amount they work, which it compares with that of a single worker. Except in countries with individual taxation, the average tax wedge of second earners who take up employment is higher than that of single workers at the same wage level, although the second-earner tax wedge has declined in recent years. The marginal tax wedge for a second earner who increases their earnings is similar to that of a single worker.
The average tax wedge for single workers increased in a majority of countries in 2023
The tax wedge of single workers with no children earning the average national wage was 34.8% of labour costs in 2023.
Between 2022 and 2023, the tax wedge for this household type increased in 23 countries and fell in 13.
In 2023, the largest tax wedges for this household type were observed in Belgium (52.7%), Germany (47.9%), Austria (47.2%), France (46.8%) and Italy (45.1%).
The personal average tax rate for this household type was 24.9% of gross wage earnings in 2023. Belgium had the highest rate, at 39.9%; Denmark, Germany and Lithuania were the only other countries with rates above 35%.
The average tax wedge for households with children rose across the OECD in 2023
The OECD average tax wedge for the two-earner couple (one earning 100% of the average wage, the other earning 67% thereof) with two children was 29.5% in 2023, larger than the tax wedge for couples with one earner at the average wage (25.7%) and that of the single parent earning 67% of the average wage (16.5%).
The largest increase across all eight household types between 2022 and 2023 was observed in the tax wedge for the two-earner married couple at 167% of the average wage without children (0.14 p.p.).
The only household type for which the average tax wedge for the OECD countries decreased in 2023 relative to 2022 was the single parent earning 67% of the average wage (-0.31 p.p.).
The tax wedge for married couples with one earner and two children was lower than for the single worker in almost all OECD countries. The difference was greater than 15% of labour costs in Belgium, Czechia, Luxembourg, Poland and the Slovak Republic.
Post-tax incomes fell in real terms in over half of OECD countries
The average wage increased in 37 OECD countries in nominal terms between 2022 and 2023 but declined in real terms in 18 out of 38 countries.
The decline in the real wage exceeded 2.0% in seven countries: Estonia (-2.2%), Iceland (-2.5%), Czechia (-3.0%), Hungary (-3.0%), Mexico (-4.5%), Sweden (-4.6%) and Colombia (-10.5%).
The real post-tax income for a single worker earning the average wage decreased in 21 countries between 2022 and 2023.
Tax and gender through the lens of the second earner (Special Feature)
The Special Feature uses the Taxing Wages models and indicators to analyse the effective tax rates on second earners – more than 75% of whom are women in most OECD countries – to examine the disincentives they may face to take up employment or increase the amount they work.
The chapter thus sheds light on a channel through which tax policy may contribute to persistent gender-related inequalities in labour-market outcomes across OECD countries, especially with respect to labour force participation.
The chapter finds that second earners face higher effective tax rates than single workers when they take up work across a majority of OECD countries.
Fiscal disincentives for second earners are larger in countries where taxation occurs at the household level or in countries with individual-level taxation where tax reliefs are nonetheless computed at the household level.
However, the tax wedge on second earners has declined since 2014, when this analysis was last carried out for the Taxing Wages Report.
Marginal tax rates for second earners tend to be very similar to those for single earners across OECD countries.
Note
← 1. The tax wedge is the primary indicator presented in this Report. It measures the difference between the labour costs to the employer and the corresponding net take-home pay of the employee. It is calculated as the sum of the total personal income tax and social security contributions paid by employees and employers, minus cash benefits received, as a proportion of the total labour costs for employers.