For single and married workers with and without children
Average tax wedge as % of total labour costs
(definition of the tax wedge PDF/57kB)
(Table I.1 - xls/50kB and Figure I.1)
The average tax wedges at the average wage level tend to be lower for a married couple with two-children than for a single individual without children due to receipt of cash benefits and/or more advantageous tax treatment.
- In the case of a single person the wedge ranges from 7.0 per cent (Chile) and 15.9 per cent (New Zealand) to 49.8 per cent (Germany) and 55.5 per cent (Belgium).
- For a one-earner married couple with two children at the same wage level the wedge is lowest in New Zealand (-1.2 per cent) and Chile (7.0 per cent) and highest in Belgium (40.3 per cent) and France (42.3 per cent).
- It is also interesting to note that the wedge for a single parent with two children earning 67 per cent of the average is negative in Australia (-6 per cent), Canada (-6.3 per cent), New Zealand (-18.7 per cent) and Ireland (-24.6 per cent). These results are because the value of the cash benefits received by these families plus any applicable non-wastable tax credits exceeds the sum of the total tax and social security contributions that are due.
Average personal income tax
(definition of average personal income tax)
(Table I.4 - xls/50kB)
Table I.4 shows personal income tax due as a percentage of gross wage earnings for eight family-types. In most OECD Member countries, the income tax burden for families with children is substantially lower than that faced by single persons without children.
For single persons without children at the average wage the income tax burden varies between zero (Chile) and 28.2 per cent (Belgium).
- In twelve OECD countries, the income tax burden faced by a one-earner married couple with two children is less than half that faced by a single individual (the Czech Republic, Germany, Hungary, Ireland, Korea, Luxembourg, Poland, Portugal, the Slovak Republic, Slovenia, Switzerland and the United States). In contrast, there is no difference in six countries - Chile, Finland, Israel, Mexico, New Zealand and Sweden
- There are only two OECD Member countries where a married average worker with two children faces a personal income tax burden that is negative. This result is due to non-wastable tax credits, whereby amounts in excess of the taxes otherwise due are paid to the family, resulting in a tax burden of -4.6 in the Czech Republic and -2.6 per cent in the Slovak Republic.
- Similarly, single persons with two children earning 67 per cent of the average wage show a negative tax burden as their non-wastable credits exceeding the taxes otherwise due in the Czech Republic, Germany, Mexico, the Slovak Republic, the United Kingdom and the United States. In nine other countries – Canada, Chile, Hungary, Israel, Korea, Luxembourg, Poland, Portugal and Slovenia – this family-type pays no or very little income tax.
An important consideration in the design of an income tax is progressivity – the rate at which the income tax burden increases with income. A comparison of columns 1 to 3 in Table I.4 provides an insight into the levels of progressivity in the income tax systems of OECD countries.
- Comparing the income tax burden of single individuals at the average wage level with their counterparts at 167 per cent of the average (columns 2 and 3), the lower paid worker faces a lower tax burden in all OECD countries.
- Similarly, single individuals at 67 per cent of the average wage level pay a lower percentage of their income in income tax (columns 1 and 2) than the average except in Chile where these workers do not pay income tax.
- Finally the burden faced by single individuals at 67 per cent of the average wage level is less than one-quarter of the burden faced by their counterparts at 167 per cent in four OECD countries: in Mexico and Chile, the tax burden is entirely eliminated, and in Korea and the Netherlands, 84 and 82 per cent of the burden respectively is eliminated.
Average employee social security contributions
(definition of average social security contributions)
(Table I.5 - xls/50kB)
Social security contributions are usually levied at a flat rate on all earnings, i.e. without any exempt threshold. In a number of OECD Member countries a ceiling applies. However, this ‘capping’ provision usually applies to wage levels higher than 167 per cent of the average wage.
- For a single worker without children at the average wage level the rate of contributions varies between zero per cent (Australia and New Zealand) and 22.1 per cent (Slovenia). Only Australia and New Zealand levy no social security contributions at all on employees, though they are very low for employees in some other countries - Iceland (0.5 per cent), Mexico (1.4 per cent) and Estonia (2.8 per cent).
- The proportional burden of employee social security contributions is constant for all family-types at all wage levels considered here, in Slovenia (22.1 per cent), Poland (17.8 per cent), Hungary (17.5 per cent), Turkey (15 per cent), the Czech Republic and Portugal (11 per cent), Norway (7.8 per cent), Chile (7.0 per cent), the United States (5.7 per cent) and Estonia (2.8 per cent).
- All OECD Member countries, except Germany and the Netherlands, impose the same burden of social security contributions on employees at the average wage level; regardless of their family status.
Marginal tax wedge
(definition of the tax wedge)
(Table I.6 - xls/50kB and Figure I.6 - xls/60kB)
Assuming a marginal increase in labour costs, Table I.6 and Figure I.6 show the percentage of the rise in labour costs that is deducted through the personal income tax and both employee and employer social security contributions (including payroll taxes).
- In most cases, the marginal tax wedge absorbs 25–55 per cent of a rise in labour costs for single individuals without children at the average wage level.
- However, in six OECD countries these individuals face higher marginal wedges – Belgium (66.3 per cent), Hungary (63.5 per cent), Austria (60.6 per cent), Germany (60.4 per cent), Finland (57.2 per cent) and Ireland (56.7 per cent).
- Mexico (18.7 per cent) and Chile (7.0 per cent) have the lowest marginal tax rates.
- In nineteen OECD Member countries, the marginal tax wedge for one-earner married couples at average earnings with 2 children is either the same or within 5 percentage points as that for single persons with no children.
- The marginal wedge is more than 5 percentage points LOWER for the one-earner married couples in seven countries: Luxembourg (17.3 percentage points), the United States (9.3 percentage points), Portugal (8.5 percentage points), Germany and Poland (7.7 percentage points), Slovenia (7.4 percentage points) and Switzerland (5.8 percentage points).
- In contrast, in the Czech Republic (5.4 percentage points), Netherlands (6.5 percentage points), Iceland (7.1 percentage points), Australia (18.8 percentage points), Ireland (18.4 percentage points), New Zealand (20 percentage points) and Canada (27.3 percentage points), the marginal rate for one-earner married couples with two children is more than 5 percentage points HIGHER than for single workers with no children.
Tables & Figures
Below are a list of the tables and figures referred to in the text above. For a full list of tables and figures presented within the 2011 Taxing Wages publication please visit the OECD iLibrary.
Table I.1. Income tax plus employee and employer contributions less cash benefits, 2011 (as % of labour costs, by family-type and wage level)
Figure I.1. Income tax plus employee and employer contributions less cash benefits, 2011 (as % of labour costs, by family-type)
Table I.4. Income tax, by family-type and wage level, 2011 (as % of gross wage earnings)
Table I.5. Employee contributions, 2011 (as % of gross wage earnings, by family-type and wage level)
Table I.6. Marginal rate of income tax plus employee and employer contributions less cash benefits, 2011 (as % of labour costs, by family-type and wage level)
Figure I.6. Marginal rate of income tax plus employee and employer contributions less cash benefits, 2011 (as % of labour costs, by family-type)
Comparative analyses comparing country data can be found on our free online database OECD.StatExtracts, under: Public Sector, Taxation and Market Regulation > Taxation > Taxing wages.
Access to the complete dataset shown in the Taxing Wages report, including detailed country information, is through subscription. For details on how to subscribe please visit our "Getting Online Access" page at the OECD iLibrary website.
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