Trends in tax over nearly 50 years
The evolution of the changes in tax ratios between 1965 and 2014 is as follows:
- The average tax to GDP ratio in the OECD area increased from 24.8% to 34.2% (9.4 percentage points) between 1965 and 2014.(Table 3.2)
- The historical development of tax ratios for individual OECD countries varies greatly, as shown in Figures 1.2, 1.3, 1.4 and 1.5. Each figure relates national changes in the tax ratio to the OECD average, for the periods 1965-75, 1975-85, 1985-95 and 1995-2014,respectively. Despite the increase, on average across the OECD countries total tax revenues as a percentage of GDP have fallen in some countries.
- Between 1965 and 1975, the tax burden in the OECD area increased by 3.8 percentage points (Figure 1.2). Until the first oil shock (1973 to 1974), strong, almost uninterrupted income growth enabled tax levels to rise in all OECD countries. In part, tax levels rose automatically through the effect of fiscal drag on personal income tax schedules.
- Between 1975 and 1985, the tax burden in the OECD area increased by 2.9 percentage points (Figure 1.3). After the mid-1970s, the combination of slower real income growth and higher levels of unemployment apparently limited the revenue raising capacity of governments. But during and after the deep recession following the second oil shock (1980), countries in Europe saw tax levels rise further, to finance higher spending on social security and rein in budget deficits.
- Between 1985 and 1995, the tax burden in the OECD area increased by a further 1.8 percentage point (Figure 1.4). After the mid-1980s, most OECD countries substantially reduced the statutory rates of their personal and corporate income tax, but the negative revenue impact of widespread tax reforms was often offset by reducing or abolishing tax reliefs.
- Between 1995 and 2000, the average OECD tax to GDP ratio rose to 34.0%, its highest recorded level at that time. It fell back slightly between 2001 and 2004, but then rose again between 2005 and 2007 before falling back following the crisis. Taking these changes together the average tax level in the OECD area increased by 0.9 percentage point between 1995 and 2014. (Figure 1.5)
- Such averages for the OECD area as a whole conceal the great variety in national tax burdens. In 1965, measures of tax to GDP ratios in OECD countries ranged from 10.6% in Turkey to 33.6% in France. By 2014, the corresponding range was from 15.2% in Mexico to 49.6% in Denmark. The trend towards higher tax levels over this period reflects the need to finance sizeable increase of public sector outlays in almost all OECD countries.
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