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Tax policy analysis

Tax revenues on the rise in many OECD countries, OECD report shows

 

11/10/2006 - Tax revenues, measured as the ratio of tax to Gross Domestic Product (GDP), are rising in many OECD countries despite deep cuts in tax rates, according to a new OECD report, reflecting both the effects of stronger economic growth, which has led to higher corporate profits, and moves in some countries to offset the effects of cuts in tax rates by broadening the tax base and improving tax compliance.

In 2005, according to the latest edition of the OECD’s annual Revenue Statistics publication, tax burdens as a proportion of GDP rose in 17 out of the 24 countries for which provisional figures are available, and fell in only five countries (see Table A). The biggest increases were in Iceland, where the tax burden rose by 3.7 percentage points to 42.4% of GDP, followed by the United States (up 1.3 points to 26.8% of GDP) and the United Kingdom (up 1.2 points to 37.2%).  The largest reduction in overall tax ratios was in Hungary (down one percentage point to 37.1%).

Based on these figures and figures for 2004, OECD analysts say, a trend towards lower tax burdens witnessed from 2000 to 2003 appears to be going into reverse. Between 2000 and 2003, the tax ratio in the OECD area as a whole fell from 36.6% of GDP to 35.8% of GDP, but in 2004 it moved back up slightly to 35.9%.

Higher revenues from taxes on incomes, including both company profits and personal income, were the main factor behind the higher 2005 tax-to-GDP ratios in Iceland, the United States and the United Kingdom (see Table B). In Iceland, an additional factor was increased revenue from taxes on goods and services. By contrast, the decline in Hungary was mainly due to lower revenue from taxes on goods and services.

Tax on personal income and corporate profits is one of the main sources of tax revenues in many OECD countries. But social security contributions and taxes on goods and services also play a major role, and the relative importance of these various taxes varies across countries (see Chart 1). In New Zealand, for example, taxes on income and profits are the largest single source of revenues, while in the Czech Republic social security contributions provide the main single source of revenues and Mexico taxes on goods and services are the main source of revenues.

Recent increases in income tax revenues – both personal and corporate – have come despite the fact that statutory rates of corporate and personal income taxes remain stable or are falling in many OECD countries. There were no increases in personal or corporate tax rates in the three countries with the largest tax ratio increase: Iceland, the United Kingdom and the United States.

That suggests that the higher tax ratios are a result of stronger economic growth in these countries, and more generally across the OECD. Stronger growth increases both the profitability of companies and the level of personal incomes, leading to an increase in the level of taxes that they pay. 

Revenue Statistics is available to journalists on the OECD's password-protected website or on request from the Media Division. For further information, journalists are invited to contact the OECD's Media Division (tel. [33] 1 45 24 97 00) or Christopher Heady in the OECD’s Centre for Tax Policy and Administration (tel [33] 1 45 24 93 22).

The publication can be purchased in paper or electronic form through the OECD’s Online Bookshop. Subscribers and readers at subscribing institutions can access the online version via SourceOECD

For further information on the report.