Going social:  the great tax-benefit balancing act

Recent OECD work has shown that household income inequality in the years up to the crisis increased in a large majority of OECD countries, with an ever rising share of national income going to the wealthiest in society. The evidence from this work also dispelled the myth that as the rich get richer, the benefits trickle down and boost jobs and wealth for everyone.

The economic crisis has added urgency to the need to address inequality. The challenge is to foster employment which enables people to escape poverty and offers real career prospects.  For this to happen, tax and benefit policies must ensure “work pays” while also addressing the question of “fairness” by ensuring that the most disadvantaged still have an adequate standard of living.

With the newest update of OECD tax-benefit policy indicators, there is now more than a decade of information (2001 – 2011) available to facilitate cross-country comparisons and analysis of time trends of the effects of taxes and benefits on the incomes of working age individuals and their families both in and out of work.  These data reveal general and country-specific trends of the generosity and incentive effects of tax and benefit regimes. For instance, during recent years net replacement rates for unemployed families with low earnings capacities were more likely to increase if these families had children.  Or, in many OECD countries lone parents reliant on safety net benefits who took up low paid employment were able to keep more of their earnings in 2011 than earlier in the decade.

For further information: contact Tax-Benefit.Models@oecd.org.

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