Tax Reform Trends in OECD Countries

Authors: Bert Brys, Stephen Matthews, Jeffrey Owens

Over the last two decades almost all OECD countries have made major structural changes to their tax systems. In the case of the personal and corporate income tax regimes reforms have generally been rate reducing and base broadening, following the lead given by the United Kingdom in 1984 and the United States in 1986. In some countries, including Australia and New Zealand, reforms have been profound and sometimes implemented over a very short period of time. In others, including most of Europe, Japan and many other Asian countries, reform has been a gradual process of adaptation.

What is a "Competitive" Tax System?

Author: Stephen Matthews

This paper was prepared for the High Level Conference on “Challenges in Designing Competitive Tax Systems”, which took place at the OECD on 30 June 2011. This conference was held within the framework of the OECD 50th Anniversary. At this conference, ministers and senior tax policy officials reviewed trends in tax reform over 50 years, discussed emerging pressures on competitiveness of tax systems and how to achieve successful reforms in the 21st century. The paper considers how tax policy and administration impact on an economy’s competitiveness and reviews various measures of ‘tax competitiveness’.

Making Fundamental Tax Reform Happen

Author: Bert Brys

This paper discusses the objectives of tax reform and explores the most important environmental factors that influence the reform process, focusing on the circumstances that explain when these objectives and environmental factors may become an obstacle to the design and implementation of tax policies. The second part of this paper discusses strategies that might help policy makers to successfully implement fundamental tax reforms.

Trends in Top Incomes and their Tax Policy Implications

Author: Stephen Matthews

This paper uses data derived from tax returns to analyse trends in the share of pre-tax personal income going to top income recipients. These data provide a more reliable source of information on top incomes than household surveys and allow a perspective of almost a century. Since the early 1980s there has been a recovery in the share of top incomes, especially in the share of the top percentile group.

The Evaluation of the Effectiveness of Tax Expenditures - A Novel Approach

Author: Antonella Caiumi

This study evaluates the regional tax incentives for business investment in Italy and addresses the following questions: (i) how much additional investment was stimulated by the government intervention; (ii) has the public financing displaced (part of) the private financing; (iii) to what extent would the outcomes on firm performance have not been achieved without the public support?

Corporate Taxation and SMEs: The Italian Experience

Author: Marco Manzo

This paper focuses on the tax impediments faced by small and medium-sized enterprises in Italy. The fact that small businesses are characterized by financing constraints and have less access to bank loans is often emphasized as an argument in favour of a special tax treatment for small enterprises. On the one hand, however, the evidence that SMEs suffer severe financing constraints is not overwhelming; on the other hand, tax relief for SMEs is not necessarily the best response to financial market imperfections.

Consumption Taxation as an Additional Burden on Labour Income

Author: Fidel Picos-Sánchez

The OECD’s Taxing Wages (TW) Report1 provides details of taxes paid on wages in the 34 OECD member countries. In particular, it covers the personal income tax and social security contributions paid by employees and their employers, as well as cash benefits received by families.

Non-Tax Compulsory Payments as an Additional Burden on Labour Income

Author: Bert Brys

In 23 of the 34 OECD member countries, it is compulsory for employers and/ or employees to make additional payments, in addition to taxes and social security contributions, which increase the overall burden on labour income. These non-tax compulsory payments, which are typically paid to privatelymanaged funds, will either increase the employer’s labour costs or reduce the employee’s net take-home pay in a similar way to taxes, although they do not necessarily have the same behavioural impact.

Taxation and Innovation

Author: Pamela Palazzi

Innovation is the cornerstone of sustained economic growth and prosperity. In a globalised world, innovation is a key driver of competitiveness between businesses and it plays a critical role in the rapid growth of emerging economies.

Wage Income Tax Reforms and Changes in Tax Burdens: 2000-2009

Author: Bert Brys

The tax burden on labour and its evolution over time are issues that feature prominently in the political debate. Averaged across the OECD, personal income taxes, social security contributions and payroll taxes together account for more than 51% of total government revenues in 2008 (OECD, 2010).

Shifting from Social Security Contributions to Consumption Taxes
The Impact on Low-Income Earner Work Incentives

Authors: Alastair Thomas, Fidel Picos-Sánchez

This paper investigates the merits of increasing work incentives for low-income workers by shifting part of the tax burden from social security contributions (SSC) to consumption taxes (specifically VAT) in 13 European OECD countries. Simulation results based on household budget survey microdata show that such reforms will increase work incentives for low-income workers at both participation and hours-worked margins. However, these increases will generally be small as part of the VAT increase will still be borne by low-income workers. 

Trends in Personal Income Tax and Employee Social Security Contribution Schedules

Authors: Carolina Torres, Kirsti Mellbye, Bert Brys

Policymakers cannot directly adjust the tax burden of labour income, but they can reform the statutory elements of the tax system, which ultimately determine average and marginal tax rates. To shed light on the determinants of average and marginal personal tax rates, this paper discusses historical and cross-country trends in statutory personal income tax rates, the income thresholds where personal income tax and employee social security contribution rates apply, and other statutory provisions that shape the tax burden on labour income in OECD countries. Trends in the difference between statutory, average and marginal personal income tax rates are also analysed and graphically illustrated. 

Taxes and Investment in Skills

Authors: Carolina Torres (OECD)

This paper considers the influence of taxes on the financial incentive to invest in human capital and explores the tax treatment of private investment by individuals and employers in post-compulsory education and lifelong learning in 31 OECD countries, India and South Africa. The paper describes targeted personal, corporate and value added tax measures related to education and training and analyses them in terms of their impacts on the incentive to acquire skills and their distributional effects. The desirability of different forms of tax relief for skills formation is examined from the point of view of efficiency, equity and administrative simplicity within the broader context of fiscal policy and the role of government in skills formation beyond compulsory education.

Modelling the Tax Burden on Labour Income in Brazil, China, India, Indonesia and South Africa

Authors: Luca Gandullia, Nicola Iacobone, Alastair Thomas

This paper examines the taxation of labour income in five key emerging economies: Brazil, China, India, Indonesia and South Africa (the "BIICS" countries). The paper highlights the key features of the taxation of labour income in these countries, and then uses this information to model the tax burdens on labour income in each country following the OECD's Taxing Wages methodology. Average and marginal tax wedges in Brazil and China (Shanghai) are found to be similar in size in 2010 to those of many OECD countries. In contrast, India, Indonesia and South Africa (as well as rural China) impose very low average and marginal tax wedges compared to the vast majority of OECD countries.

Average Personal Income Tax Rate and Tax Wedge Progression in OECD Countries

Author: Dominique Paturot, Kirsti Mellbye, Bert Brys

The statutory progressivity of the income taxes paid by wage earners, net of the standard cash benefits they receive, depend on the design and interaction of personal income taxes, social security contributions (SSCs) and cash benefits. In order to capture their combined impact, this paper presents statutory tax progressivity indicators for the 34 OECD member countries on the basis of average effective income tax rates and tax wedges which are calculated using the OECD’s Taxing Wages framework. The analysis shows a decreasing pattern of tax progressivity across income levels. In some countries, the tax system becomes regressive when the SSC ceiling has been reached.