Taxing Wages 2026

2. Progressivity of labour taxation in OECD countries

Introduction

Labour taxation is central to the interaction between tax, inequality and economic growth in OECD countries. Labour taxes directly influence distributional outcomes, especially when used in conjunction with cash transfers; they also indirectly affect other economic variables, including labour market participation, through their impact on the decisions of firms and workers. Based on the detailed and harmonised information that Taxing Wages provides about the design and parameters of personal income tax, social security contributions and benefits, this Special Feature examines the progressivity of labour taxation in OECD countries, where a tax system is considered progressive if average tax rates increase with income.

To do so, the Special Feature adopts and builds upon the statutory progressivity indicator introduced in the 2013 edition of Taxing Wages to examine the extent to which the tax wedge on labour income varies according to the earnings and composition of working households in OECD countries. Moreover, it explores which components of each country’s labour taxation system account for its statutory progressivity (or lack thereof) and how statutory progressivity evolved across the OECD between 2000 and 2025.

In the absence of information on the distribution of earnings, the special feature does not analyse the actual progressivity of labour taxation. Moreover, Taxing Wages does not include all the instruments that a government may implement to supplement workers’ disposable income. Nonetheless, the chapter uses the granular and comparable information provided by Taxing Wages to give unique insights to policy makers, academics and civil society about how the different components of labour taxation systems may affect distributional outcomes. In particular, it examines at what income levels labour taxation is most progressive in OECD countries and which instruments account for this progressivity.

The analysis reveals that the progressivity of labour taxation (inclusive of cash transfers to working families) varies across the OECD. Nonetheless, certain characteristics are shared by a majority of countries. For instance, progressivity tends to be higher for households with children and at lower earnings intervals, as tax reliefs and cash transfers reduce the average tax burden more for low earners than they do for workers higher up the earnings distribution. Meanwhile, progressivity has increased on average across OECD countries between 2000 and 2025, largely due to increases in the progressivity of the tax wedge on earnings below the average wage.

The chapter is structured as follows. It begins by explaining the rationale for using Taxing Wages to examine the statutory progressivity of labour taxation, explaining how this analysis links to the tax, inequality and growth agenda, and summarising previous findings from Taxing Wages analysis of progressivity. It then sets out the methodology behind the OECD progressivity indicator and its application for this Special Feature. The third section examines how the level of the progressivity indicator varies within and between OECD countries based on different components of the tax wedge, taking into account households’ different earnings levels and composition. The fourth section analyses how statutory progressivity has changed over time across OECD countries, while a fifth section concludes.

The progressivity of labour taxation is at the heart of the tax, inequality and growth agenda

Taxing Wages provides comparable data on working households’ personal income tax liability, social security contributions (paid by employers and employees) and any cash benefits for which they may be eligible, in particular households with children. These policy instruments have different impacts on the distribution of incomes across the working population, the direction and extent of which vary according to the rules and parameters that govern their design and implementation. The same policies may also influence how much an individual chooses to work or employers’ hiring decisions; in this way, policies that influence distributional outcomes may also affect broader macroeconomic outcomes which in turn may impact economic growth.

The design of personal income tax and social security contributions, which generate almost half of total tax revenue on average across OECD countries, is thus a key consideration for managing countries’ public finances and the overall functioning of the economy (OECD, 2025[1]). Labour taxation also lies at the nexus of discussions around tax, inequality and economic growth that are currently of major concern to policy makers and society more broadly amidst persistent cost-of-living challenges, slow growth in many countries and major pressures (short- and long-term) on public finances.

The standard Taxing Wages indicators show how tax rates on labour income vary across earnings levels for different household types but do not show the overall progressivity of labour taxation, as Box 2.1 explains with reference to marginal tax rates. This Special Feature uses an indicator developed in previous editions of this Report to examine the statutory progressivity of labour tax systems as a whole in OECD countries and to show how this progressivity has evolved over time.

This indicator shows the distributive implications of how labour taxation systems in OECD countries are designed rather than the actual impact of labour taxation on the distribution of incomes across the working population. Taxing Wages lacks the demographic data required to analyse the latter phenomenon, which in any case would benefit from taking into account the redistributive impact of other tax types as well.1

By analysing statutory progressivity, the Special Feature aims to inform both the policy response to the challenging context and broader deliberations across society. Although beyond the scope of this chapter, the results shown here can inform analysis of how the progressivity (or otherwise) of labour taxation interacts with other key economic variables across countries.

Of particular interest to this chapter is evidence from some countries suggesting that the impact of tax progressivity on other parts of the economy is sensitive to the parts of the income distribution where the progressivity is concentrated. For example, studies of high earners in the United States and Norway indicate that greater progressivity at higher tax levels reduces job mobility among this cohort, as the net financial gain from changing jobs declines (Gentry and Hubbard, 2004[2]; Bryson and Dale-Olsen, 2025[3]). Meanwhile, tax reductions in the United States targeted at low- and middle-income households have been shown to generate substantially larger employment responses than equivalent tax cuts for high earners, reflecting higher labour supply elasticity and marginal propensity to consume at the lower end of the income distribution (Zidar, 2019[4]).2

Moreover, progressive income tax systems are commonly viewed as a key instrument for influencing distributional outcomes. Cross-country studies suggest that statutory progressivity tends to reduce inequality in terms of disposable incomes (Eydam and Qualo, 2024[5]) but the impact on consumption inequality is significantly smaller and, in some cases, may even be positive in countries with weaker institutions (Duncan and Sabirianova Peter, 2016[6]).

Consistent with evidence from Voitchovsky (2005[7]) that the impact of inequality on growth depends on where disparities arise in the income distribution, Biswas et al. (2017[8]) find that the effect of tax progressivity on economic growth similarly depends on where the redistribution occurs.3 They show that tax policies that reduce the disparities in households’ income at the bottom of the income distribution may support economic growth while greater compression of income disparities higher up in the distribution may hinder growth by reducing incentives to work, invest and innovate among higher earners.

In general, empirical findings on the effects of tax progressivity on economic growth are mixed. While some studies find no evidence of a significant and permanent negative impact on economic growth (Gerber et al., 2020[9]), others identify negative effects in the short run (Tovar Jalles and Karras, 2025[10]).

Finally, by shaping how tax burdens are distributed across income groups, labour tax progressivity influences governments’ ability to raise revenues and finance public goods and services. Evidence on the effects of progressivity on tax revenue remains mixed. Some cross-country studies suggest that greater personal income tax progressivity is associated with higher tax revenues, particularly in higher income countries with stronger enforcement capacity (Peter, Buttrick and Duncan, 2010[11]). Other literature, however, highlights that behavioural responses may offset part of the expected gains.

For example, Holter, Krueger and Stepanchuk (2019[12]) estimate that increasing the progressivity of the United States’ tax system to the level of Denmark would lower the maximum level of revenues the United States can raise by 8%. Similarly, Guner et al. (2016[13]) show that higher top marginal tax rates do not necessarily translate into proportionately higher overall tax revenues, as effective average tax rates may respond only modestly due to behavioural adjustments and income shifting.4 Likewise, Sanz Sanz (2025[14]) suggests that increases in progressivity may generate limited and, in some cases, temporary gains in personal income tax revenues, which may be offset over time by changes in labour supply, savings and consumption that affect other tax bases.

Re-introducing the OECD’s tax progressivity indicator

To analyse the progressivity of labour taxation in OECD countries, this Special Feature adopts and extends an indicator that was introduced in the Taxing Wages 2013 Special Feature to examine the statutory progressivity of labour taxation systems (OECD, 2013[15]; Paturot, Mellbye and Brys, 2013[16]). That Special Feature used Taxing Wages data for 2011 to analyse the progressivity indicator for personal income tax and the overall tax wedge for four different household types across earnings between 50% and 200% of the average wage for 34 OECD countries. While the analysis found significant differences in the level of the progressivity indicator across countries, it showed that progressivity in OECD countries tended to be concentrated at the lowest income levels.

The Special Feature of the 2014 edition (OECD, 2014[17]) extended the analysis to six household types and to up to 500% of the average wage. It also tracked the evolution of the indicator between 2000 and 2012, with a particular focus on changes following the onset of the Global Financial Crisis in 2007. The analysis found that personal income tax and the tax wedge became more progressive on average across OECD countries between 2000 and 2012, albeit with significant variation between countries.

Box 2.1. The limitations to using marginal tax rates to analyse progressivity

Marginal tax rates shown in Taxing Wages for households at different earnings levels and with different compositions show the proportion of one percentage point of the average gross salary in additional labour income that is paid in taxes. According to one definition, a tax is progressive if the marginal tax rate exceeds the average tax rate at a given income level.1 However, at certain points in the income distribution this may not hold. In general, when focusing on personal income tax alone, under a progressive (regressive) system, marginal tax rates increase (decrease) with earnings across the income distribution. However, for social security contributions, marginal tax rates may decrease along the income distribution if a contribution ceiling is in place.2

Figure 2.1 shows the marginal tax wedge at 50% and 500% of the average wage for a single worker without children across OECD countries in 2025. The indicator at both earnings levels was highest in Belgium, with a marginal tax wedge of 86.9% for a worker earning 50% of the average wage and 67.7% for a worker earning 500% of the average wage. In contrast, Colombia had the lowest marginal tax wedge at these earnings levels, at 0% and 19.1% respectively. On average across OECD countries, the marginal tax wedge was 41.6% at 50% of the average wage and 47.6% at 500% of the average wage. The average tax wedge at these income levels was 27.4% and 45.1% respectively, below the marginal rates and thus indicating progressivity according to the definition above.

Figure 2.1. Marginal tax wedge for a single worker at 50% and 500% of the average wage, 2025

Note: The marginal tax wedge indicators are computed for an increase in earnings of 1 percentage point of the national gross average wage.

Source: Authors’ calculations based on Taxing Wages 2026.

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As Figure 2.1 shows, OECD countries can be divided into two groups: in 25 countries, the marginal tax wedge at 50% of the average wage was lower than the marginal tax wedge at 500% of the average wage in 2025, while in the remaining 13 countries the opposite was true.

Labour taxation systems in the second group of countries (mostly found towards the left of the x axis) include means-tested reliefs and benefits, which diminish and eventually disappear as earnings increase, resulting in a relatively high marginal tax wedge on lower-earners. In Belgium, Austria and France, for example, the marginal tax wedge on an additional percentage point of the average wage earned by a high earner was significantly lower than the corresponding indicator for a low earner (by 19.2 p.p., 32.6 p.p. and 7.9 p.p. for Belgium, Austria and France, respectively).

For the first, larger group of countries, the marginal tax wedge for the lower-earning worker is below that of higher-earners. In these cases, the progressive effect of the tax brackets is more significant than the eventual loss of benefits experienced by the low-earning worker, and the tax burden on an additional percentage point of the average wage earned is much higher for high earners. Moreover, in this group of countries, the difference in the marginal tax wedge at the respective earnings levels appears to be larger than in the second group.

Figure 2.2. Decomposition of the marginal tax wedge for a single worker in 2025

Source: Authors’ calculations based on Taxing Wages 2026.

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Figure 2.2 shows the decomposition of the marginal tax wedge at both earnings levels for a single worker without children. At 50% of the average wage, the marginal tax wedge on the additional percentage point earned is mostly driven by higher social security contributions (levied on both employees and employers). Meanwhile, at 500% of the average wage, the main driver of the marginal tax burden is personal income tax, as social security contributions are capped in many countries, meaning that they do not increase with additional earnings.

Amongst the countries that display a higher marginal tax wedge at 50% of the average wage than at 500% of the average wage, social security contributions (employer and employee) are particularly prominent in the marginal tax wedge at 50% of the average wage.

While the marginal tax wedge as calculated for Taxing Wages quantifies the household’s tax burden for small increments of earnings, it does not show the degree of change in the tax burden across a given earnings interval. This can lead to misleading assessments of a tax system’s progressivity. For example, zero-rate tax brackets or targeted tax reliefs for low-earning workers are likely to enhance the progressivity of a country’s labour taxation system. However, they may increase the marginal tax wedge of workers who are “means-tested out” of these benefits to a level above the marginal tax wedge of a higher-earning worker, thereby indicating a system that is regressive.

1. A tax is progressive when the relative increase of the tax amount (T) is larger than the relative increase of income (Y), hence, p >1 where $p=(dT/T)/(dY/Y)$. This can be written as: $p=(dT/dY)/(T/Y)$ = marginal rate / average rate. Thus, when p >1, then marginal rate > average rate.

2. Detailed information on the average and marginal tax rates for all earnings levels between 50% and 250% of the average wage are shown in Chapter 4 of this report.

The analysis in this Special Feature uses the same progressivity indicator and key parameters as the 2014 edition of Taxing Wages: six household types and an income range of 50% to 500% of the average wage, albeit for 38 OECD countries. However, this chapter extends the time horizon to analyse how statutory progressivity evolved in OECD countries between 2000 and 2025, a period that included two major shocks: the Global Financial Crisis and the COVID-19 pandemic.

This Special Feature also analyses the progressivity indicator for each component of the tax wedge (personal income tax, employee social security contributions, employer social security contributions and cash benefits), thereby fulfilling a suggestion for future analysis proposed by the Special Feature in the 2014 edition. The following section recalls how the progressivity indicator is calculated and explains in greater detail how it has been adopted for this edition of Taxing Wages.

Calculating the OECD tax progressivity indicator

The analysis carried out in this Special Feature is based on the OECD progressivity indicator of the tax wedge. The OECD progressivity indicator measures statutory tax progressivity and is calculated with reference to the policies and rules of each country’s tax and social security system. As mentioned above, it is not possible to compute an effective progressivity indicator based on the information contained in Taxing Wages without additional information on distribution of pre- and post-tax incomes.

The OECD progressivity indicator5 takes into account all the policies that are included in the Taxing Wages models and is thus comparable across OECD countries.6 However, the results need to be treated with caution as the Taxing Wages methodology does not include all policies for which workers might be eligible. For example, only standard tax reliefs are modelled (such as work-related tax allowances or child-related credits), while non-standard allowances and credits directly linked to consumption are excluded from the calculations (for example, allowances for purchases of fuel or other energy supplies fall within this group). The Methodology and Limitations section and the country chapters in Part II of the report provide an overview of the policies included in the Taxing Wages models for all OECD countries.7

Following the same approach adopted in the 2013 and 2014 Special Features (OECD, 2013[15]; OECD, 2014[17]; Paturot, Mellbye and Brys, 2013[16]), the progressivity indicator used in this chapter is applied to the tax wedge, and is computed as follows:

$Progressivity indicator= \frac{({AETR}_{X2\% AW}-{AETR}_{X1\% AW})}{(X2\% AW-X1\% AW)}$

Where, AETR_{X1% AW} and AETR_{X2% AW} are the average tax wedge at two different income levels X1 and X2. Income levels are expressed as a multiple of the national average wage for a given year in each country. As explained in Chapter 1 of the report, the tax wedge is the share of total labour costs that the household pays in personal income taxes, social security contributions and payroll taxes paid by both the employee and the employer, net of the cash transfers received.

The indicator measures the change in the average tax wedge for each percentage point increase in income, measured as a multiple of the average wage, over the income range X2% AW – X1% AW (Paturot, Mellbye and Brys, 2013[16]). In other words, a progressivity indicator of 0.5 for the income range from 50% to 67% of the average wage means that, for each percentage point (p.p.) of the average wage in additional income a given household type earns, the average tax wedge increases by 0.5 p.p. The overall increase in the average tax wedge from a gross salary of 50% of the average wage to 67% of the average wage is equal to 0.5 multiplied by the increase of 17 p.p. in gross earnings, or 8.5 p.p.

The progressivity indicator does not show the level of the average tax wedge at either extreme of the income range considered. It only demonstrates the change in the tax wedge between the two limits by showing how much the tax wedge changes for each unit increase in the earned income of the household (expressed as percentage points of the average wage).

In this chapter, the progressivity indicator of the tax wedge for each country is calculated between earnings of 50% and 500% of the average wage. This range is also broken down into seven intervals that demonstrate how the progressivity of the tax wedge changes depending on earnings levels calculated as a proportion of the average wage:

• First interval: 50% to 67%

• Second interval: 67% to 100%

• Third interval: 100% to 133%

• Fourth interval: 133% to 167%

• Fifth interval: 167% to 200%

• Sixth interval: 200% to 300%

• Seventh interval: 300% to 500%

While two countries may show a similar progressivity indicator for the earnings range as a whole, this might hide different dynamics across income intervals. For instance, the progressivity indicator may be consistent across all intervals for one country, indicating a fiscal system with continuous increases in the average tax wedge with earnings, while another country might have a very steep increase in the tax wedge over a single income interval and no further changes beyond that point (or even decreases in the tax burden for certain intervals).8

The average standard deviation of the progressivity indicator across the seven income intervals shows the degree of variation in the progressivity of the tax wedge across the overall earnings range. A higher standard deviation indicates a greater variation in the progressivity indicator across earnings intervals with respect to a country with a similar value for the progressivity indicator but a lower standard deviation. In this analysis, for simplicity, all seven earnings intervals have been given the same weight when computing the standard deviation, regardless of the size of the intervals.

The Special Feature does not examine the progressivity of taxation of incomes above 500% of the average wage for several reasons. First, above a certain earnings level, individuals tend to receive additional earnings through non-salary income, such as capital income, which is taxed at preferential rates in most OECD countries (Hourani and Perret, 2025[18]). Second, the tax schedules of most countries reach the top bracket by that earnings level: only 11 countries implement brackets targeted specifically at earnings above five times the average wage. Moreover, social security contributions and cash transfers only marginally affect the progressivity of fiscal systems above 500% of the average wage.

Applying the tax progressivity indicator across OECD countries in 2025

This Special Feature begins by using data for 2025 to update and expand upon the main results on the progressivity of the tax wedge from previous Taxing Wages Special Features on this topic. First, it compares the progressivity indicator for each OECD country across the whole earnings range (50%-500% of the average wage). Then it examines the progressivity of the OECD average tax wedge at different wage intervals and the relative weight of each component of the tax wedge in determining the progressivity at different earnings levels for six different household types. This analysis is then mirrored for all OECD countries for the single worker without children and the one-earner married couple with two children. Finally, it examines in more detail the difference in progressivity between households with and without children.

Average progressivity varies across OECD countries

Figure 2.3 displays the progressivity indicator across OECD countries in 2025 for a single worker without children earning between 50% and 500% of the average wage. In France, where the progressivity indicator was highest, each percentage point of the average wage in additional earnings resulted in an increase in the tax wedge of almost 0.1 p.p.; in Hungary, where the progressivity indicator was lowest, the tax wedge was constant across the whole earnings range. On average in OECD countries, an increase in gross earnings of 1 p.p. of the average wage led to a 0.04 p.p. increase in the tax wedge.

While the standard deviation of the progressivity indicator was relatively small for some countries (such as Chile, Colombia, Costa Rica, Japan, Slovenia, Switzerland, Denmark, Sweden and Korea), the progressivity indicator for most countries shows significant differences between the value for the overall earnings range and those for the specific earnings intervals, resulting in a higher standard deviation. This was particularly true for Spain, Belgium and France, which had the highest standard deviations, at 0.17, 0.22 and 0.42 respectively.

In general, the high standard deviations are driven by the concentration of progressivity within the lowest earnings interval (50%-67% of the average wage), with 25 OECD countries showing a progressivity indicator for this interval at least three times larger than the value for the overall earnings range.

Figure 2.3. Progressivity indicator with standard deviation across earnings intervals, 2025

Single worker without children

Note: The standard deviation shown for each country is computed across the progressivity indicators for each of the seven smaller earnings intervals. No weight is applied to the indicator for each of the intervals.

Source: Authors’ calculations based on Taxing Wages 2026.

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On average, progressivity is higher in lower earnings intervals

Figure 2.4 shows the average progressivity indicator for OECD countries in 2025 and its decomposition between the main policy components for six household types: a single worker, a single parent of two children, a one-earner married couple, a one-earner married couple with two children, a two-earner married couple and a two-earner married couple with two children. For each household, the indicator is calculated for each earnings interval to show the variation across the range from 50% to 500% of the average wage.

Across all household types, the progressivity indicator declines with income on average across the OECD. This finding, which is consistent with results shown previously in Taxing Wages, suggests that low-earning workers benefit more from tax allowances and tax credits than higher earners as these reliefs tend not to increase with earnings. Moreover, workers in the lowest-earnings interval are more likely to benefit from zero-rate tax brackets or means-tested reliefs (and cash transfers for households with children) than higher earners.9 In other words, between the start and end points of these lower earnings intervals, the tax wedge tends to increase by a substantial amount, contributing to a higher progressivity indicator.

In contrast, the progressivity indicator for a worker whose gross wage rises from 300% to 500% of the average wage is typically small, between 0.010 and 0.015 on average across the OECD depending on the characteristics of the household. This reflects the fact that, in 21 of 38 OECD countries, the tax schedule reaches the highest marginal rate before 300% of the average wage. At that point, the reliefs and benefits usually available for lower-earning workers have either been fully phased out or represent only a small share of gross wages due to means-testing.

Figure 2.4. Decomposition of the OECD average progressivity indicator, 2025

Note: In the one-earner married couples, the spouse is assumed to be inactive. In the two-earner married couples, the spouse is assumed to be gainfully employed at 67% of the average wage, regardless of the earnings level of the principal.

Source: Authors’ calculations based on Taxing Wages 2026.

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The progressivity indicator is particularly high for single parents and one-earner couples with two children, especially at lower earnings intervals on average across the OECD. This is due to the relative weight of universal and means-tested cash transfers in the total post-tax net income of these household types. As these benefits generally do not increase with earnings, their importance relative to the overall tax wedge decreases as earned income increases, which explains why their impact on progressivity is mostly visible within the 50%-67% and the 67%-100% intervals. The use of means-testing to determine the amount of the benefit further contributes to increasing the progressivity of this component of the tax wedge. Progressivity appears to be relatively low for two-earner couples, with or without children, across all earnings intervals, as the earnings of the spouse (fixed at 67% of the average wage) tend to render the households ineligible for targeted reliefs and benefits.

Personal income tax consistently contributes to the progressivity of labour taxation in OECD countries as it is usually based on progressive tax schedules. Moreover, tax credits and (mostly but not always) tax allowances contribute further to labour tax progressivity by providing reliefs to lower earners that either remain unchanged or are withdrawn as their gross earnings increase.10

Social security contributions, paid by both the employer and the employee, contribute positively to the progressivity indicator for the lowest earnings interval on average due to the existence in some countries of reductions to the contributions for low-earners (in Belgium and France) or progressive contribution schedules (in Israel), while they have a negative impact on the indicator from the third earnings interval and above due to the existence of contribution ceilings in the majority of OECD countries.

The latter dynamic should be interpreted in light of the expenditure side of social insurance systems. In countries where social security contributions are linked to defined pension benefits or earnings-related unemployment insurance, contribution ceilings reflect the insurance nature of the system. In such cases, the regressive effect observed in the progressivity indicator does not necessarily imply a regressive outcome for households, as the corresponding future benefit entitlements are also capped.

Annex Figure 2.A.1 provides a different perspective on the distribution of the progressivity indicators by showing boxplots of the progressivity of the tax wedge by earnings interval and household composition. The figure shows the large degree of variation in the indicator across countries at lower earnings intervals, while progressivity is more similar at higher earnings intervals.

Progressivity patterns differ widely across OECD countries

Figure 2.5 shows in greater detail the extent to which the progressivity indicator for a single earner without children varied across OECD countries in 2025. There are 14 countries where the progressivity indicator for three or more income intervals was at least 50% above the OECD average for that income interval: Australia, Belgium, Denmark, Finland, France, Greece, Ireland, Israel, Luxembourg, Netherlands, New Zealand, Portugal, Sweden and the United Kingdom.

While for the majority of countries progressivity for this household type is driven principally by personal income taxes across the different intervals, this is not always the case. In Chile, Colombia and Costa Rica, only relatively high-earning individuals pay personal income tax, with the higher tax brackets taking effect on earnings significantly above the average wage.11 Meanwhile, Estonia12 and Hungary have a flat-tax system, which accounts for the absence of progressivity in labour taxation.

The impact of social security contributions on the overall progressivity indicator varies by country. For example, social security contributions paid by employees make a significant positive contribution to progressivity at low earnings intervals in Austria, Belgium, Israel and the Netherlands, mainly due to reduced contribution rates for low earners (in Austria, Belgium and Israel) or the presence of a reduction for employee social security contributions which decreases with earnings (in the Netherlands).13 In France, the indicator for the 50%-67% earnings interval is mostly driven by social security contributions paid by employers due to a means-tested reduction in the contribution that decreases sharply within this interval.

Conversely, in many countries, social security contributions contribute negatively to the progressivity indicator, especially at higher earnings intervals due to the presence of contribution ceilings. This is particularly visible in the results for Austria, Canada, Germany, Greece, Israel, Italy, Japan, Korea, Luxembourg, the Netherlands, Poland, Spain14, Sweden and Türkiye. In Canada, the Netherlands and Sweden, there are specific tax credits that deduct the employee social security contributions paid (partly in Canada and the Netherlands and completely in the case of Sweden) from the final tax liability. These credits allow the personal income tax to mitigate the regressivity of the employee social security contributions. In Slovenia, the employer social security contribution completely offsets the progressivity of personal income taxes for the earnings interval of 50% to 67% of the average wage.15

Figure 2.6 shows the progressivity of the tax wedge for all the earnings intervals for a one-earner married couple with two children. The figure displays a similar degree of variation as Figure 2.5, albeit with a tendency for the progressivity indicator to be higher for this household type than for a single worker in most countries. This is particularly the case for workers in lowest earnings interval, as the means-testing mechanisms of the benefits they receive contribute to very high progressivity indicators.

In contrast, the higher progressivity in the United States is due to personal income taxes, as the Earned Income Tax Credit is considerably larger for workers with children and an unemployed spouse.

Figure 2.5. Progressivity by earnings interval for a single worker without children, 2025

Source: Authors’ calculations based on Taxing Wages 2026.

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Figure 2.6. Progressivity by earnings interval for a one-earner married couple with children, 2025

Source: Authors’ calculations based on Taxing Wages 2026.

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Cash transfers and other reliefs for families with children increase progressivity

Figure 2.7 expands on the results shown in Figure 2.4 by demonstrating in greater detail the difference in the progressivity indicator between a single worker and a one-earner married couple with two children for all OECD countries in 2025. In general, the tax wedge of married couples with children exhibits greater progressivity: on average across OECD countries, the progressivity indicator for the single worker is 0.39 while for the household with children it is almost double, at 0.79.

The largest differences between the two household types occur in Australia, Canada and New Zealand (around 0.10 p.p.), while countries whose Taxing Wages models do not contain means-tested cash transfers (such as Colombia, Costa Rica and Türkiye) display no differences in the progressivity of the tax wedge across the two household types.

As mentioned in the analysis of Figure 2.4, tax reliefs and cash transfers targeted at families with children contribute positively to the progressivity indicator as they generally do not increase with earnings. The impact of a lump-sum amount in reducing the tax wedge is larger at 50% of the average wage than at 500% of the average wage. Moreover, these policies might also be explicitly targeted at lower-earning households through means-testing, further enhancing their impact on the progressivity indicator.

Figure 2.7. Tax wedge progressivity for a single worker earning the average wage and a one-earner married couple with two children, 2025

Note: The earnings interval considered is 50%-500% of the average wage. The non-working spouse in the one-earner couple is assumed to be inactive.

Source: Authors’ calculations based on Taxing Wages 2026.

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Tracking the progressivity indicator over time

This section examines changes in the progressivity indicator between 2000 and 2025 for different households across OECD countries, with the aim of identifying which policies have driven the changes in the indicator, and over which years these changes occurred. The overall time period, which spans the Global Financial Crisis, the COVID-19 pandemic and other economic shocks, is broken into intervals that provide a clearer indication of whether the progressivity indicator changed gradually or whether the changes were concentrated in specific periods. Finally, it provides detailed information on the changes for a single worker and a one-earner married couple with two children across all earnings intervals for all OECD countries.

Labour taxation has become more progressive since 2000, especially for households with children

Figure 2.8 shows how the progressivity indicator evolved on average across OECD countries between 2000 and 2025 for four household types: a single parent and one-earner married couple (both with two children) as well as a single earner and one-earner married couple (both without children).

On average across OECD countries, the progressivity of the tax wedge for all the household types rose slightly over the period considered when focusing on the entire income range between 50% and 500% of the average wage. The increase in the indicator for the households with children was more than twice as large (0.011 p.p.) as for households without (0.005 p.p.).

For all four households, an upwards trend in the progressivity indicator is visible between 2011 and 2021, while the indicator remained steady or slightly declined from 2022 to 2025. Over the same periods, the tax wedge for the four households declined for the workers earning 50% of the average wage while remaining stable for those earnings 500% of the average wage.

Figure 2.8. Change in the progressivity indicator for different household types, OECD average, 2000-25

Source: Authors’ calculations based on Taxing Wages 2026.

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Figure 2.9 breaks down the change observed in the progressivity indicator for the one-earner married couple with two children by different time periods on average across OECD countries. Looking across all five intervals, the largest increase in the progressivity of the tax wedge occurred between 2014 and 2019. Between 2022 and 2025, the progressivity indicator slightly declined on average across OECD countries, reversing an increase of similar magnitude between 2019 and 2022, a period which captured the policies enacted by OECD countries to support workers in response to the COVID-19 pandemic.16

Some of the countries where the progressivity indicator for one-earner married couple with two children increased the most during the COVID-19 pandemic (Australia, Chile, New Zealand and the United States), also demonstrated a marked decrease in progressivity in the years immediately after, with Chile and the United States being the clearest examples of this phenomenon.

Italy and Korea were the only two OECD countries where the progressivity indicator for this household type rose during all five intervals. Meanwhile Denmark and Slovenia were the only countries where the indicator declined in all periods. However, in Italy and Denmark the magnitude of the cumulative variation was very small.

Fiscal drag can also explain part of the change in the progressivity indicator, as variations in the average wage relative to fixed tax schedules and eligibility thresholds for cash benefits can influence progressivity. For example, periods of increases or rapid growth in nominal wages (such as was observed in 2022 and 2023) mechanically reduce progressivity without any significant change in policy due to fiscal drag (OECD, 2023[19]; OECD, 2014[17]). This is because lower-earning workers might be pushed into higher tax brackets or lose eligibility to means-tested benefits or reliefs even though their earnings have not risen in real terms.

Annex Figure 2.A.2 shows the same analysis for a single worker without children. While changes between 2000 and 2025 are smaller overall for this household type, the trends highlighted are similar.

Figure 2.9. Decomposition of the change in the progressivity indicator by period

One-earner married couple earning between 50% and 500% of the average wage with two children

Note: The non-working spouse in the household is assumed to be inactive.

Source: Authors’ calculations based on Taxing Wages 2026.

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The lowest earnings intervals account for most of the change in average progressivity across the OECD

Figure 2.10 shows the evolution of the progressivity indicator on average across the OECD between 2000 and 2025 for different household types and earnings levels. Panel A compares the average progressivity across earnings intervals in 2000 (grey line) with the same indicator in 2025 (blue line) while Panel B shows the decomposition of the change over this period across the various policy components.

Although the average progressivity in 2025 appears higher than in 2000, the two lines principally diverge in the first two earnings intervals (50%-67% and 67%-100% of the average wage), while they overlap almost perfectly for higher earnings. The more visible increase in the progressivity for workers in the lowest earnings intervals might not be due solely to the introduction of benefits (either tax reliefs or transfers) specifically targeted at them, but could also reflect increases in the amount of flat allowances, credits and child-related cash transfers available to all workers. In the latter case, as these benefits do not increase with earnings, they still contribute to a rise in the progressivity indicator.

The increases observed in the first two earnings intervals (50%-67% and 67%-100% of the average wage) were particularly large for one-earner married couples with and without children and, in particular, the single parent with two children. For all three of these household types, cash transfers were the main driver of the increase, the impact of which mostly disappears above the second earnings interval. In 2025, cash transfers contributed to a larger decrease in the tax wedge for one-earner couples earning 50% of the average wage with two children (from -11.7 p.p. in 2000 to -15.1 p.p. in 2025), suggesting an increase in the amount of such benefits, which contributed to higher progressivity as they do not increase with earnings (on the contrary, they might decrease when means-testing is present).

The progressivity indicator changed very little from the earnings interval of 100%-133% of the average wage upwards between 2000 and 2025, while slightly decreasing for the top range (300%-500% of the average wage). The change in overall progressivity between 50% and 500% of the average wage thus appears to be almost entirely explained by significant increases in the progressivity at low-earnings intervals (50%-67% and 67%-100% of the average wage), regardless of household composition.

In addition to the significant impact of cash transfers, personal income taxes consistently contributed to increasing progressivity across earnings intervals between 2000 and 2025. Over the same period, employee and employer social security contributions did not have a consistently positive or negative impact on the change in the progressivity indicator across all the earnings intervals.

Figure 2.10. Changes in the progressivity indicator by earnings interval, OECD average, 2000-25

Note: In the one-earner married couples, the spouse is assumed to be inactive. In the two-earner married couples, the spouse is assumed to be gainfully employed at 67% of the average wage, regardless of the earnings level of the principal.

Source: Authors’ calculations based on Taxing Wages 2026.

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Figure 2.11 and Figure 2.12 provide country-by-country results for the changes in the progressivity of the tax wedge for all earnings intervals between 2000 and 2025, for the single worker without children and for the one-earner married couple with two children respectively. Consistent with the results shown by Figure 2.10, the largest and most significant changes in the progressivity indicator affect the first two earnings intervals, and they are, generally, larger for the one-earner married couple with two children due to the effect of cash transfers.

Figure 2.11 demonstrates a great degree of variance across OECD countries in how the progressivity of labour taxation for the single worker without children changed throughout the period considered. The largest overall increase occurred in France, and it was almost completely driven by an increase in progressivity for the first earnings interval (50%-67% of the average wage) that is attributable to a combination of employer social security contributions and cash transfers (the latter associated with the introduction of the Prime d’activité in 2016). Belgium and Spain17 are two other notable examples of countries where the rise in the progressivity indicator was driven by a large increase for the first earnings interval.

In Finland, Italy, Latvia, the Netherlands and Türkiye, the increase in the progressivity indicator is more consistent across the earnings intervals, albeit with smaller increases at higher earnings levels. Nevertheless, most countries display both increases and decreases in the progressivity indicator depending on the earnings level considered. The changes are usually larger at lower earnings intervals and smaller at higher intervals, with the exceptions of Chile, Colombia, Poland, Sweden and the United Kingdom, where the overall change is driven by earnings intervals above the average wage.

Figure 2.12 focuses on the changes in the progressivity indicator for the one-earner married couple with two children. It shows the strong and usually progressive impact of targeted cash transfers, in particular for the lower earnings intervals. France is again the country with the highest increase in progressivity between 2000 and 2025, driven by the changes in the first and second earnings intervals.

While cash transfers seem to generally contribute to increases in progressivity between 2000 and 2025, they contributed negatively to the change in Austria, Czechia, Denmark, Finland, Hungary, Iceland, Israel, Italy, Luxembourg, Slovakia and Slovenia.

Some countries observed significant changes in the composition of their progressivity over the period in question in terms of the policy driver, even while the overall level of the progressivity indicator remained similar. This was the case of the United Kingdom (particularly for the first earnings interval), where the relatively large positive contribution of cash transfers to progressivity was completely offset by the negative contribution of personal income taxes. To a lesser extent, it also occurred in Ireland, where the positive effect of cash transfers on the progressivity indicator for the first earnings interval more than outweighed the negative impact of personal income taxes and social security contributions at the same earnings level.

Overall, the analysis indicates that labour taxation became more progressive in OECD countries between 2000 and 2025, particularly for families with children. It also shows that the increase in progressivity was concentrated at low earnings levels and was mostly the result of increases in tax reliefs and (sometimes means-tested) cash transfers, resulting in lower tax wedges for workers in the lowest earnings interval. While these policies supported the disposable incomes of low-earning workers, they also increased the marginal tax rates on potential salary increases in many countries, as discussed in Box 2.1.

Figure 2.11. Change in the progressivity indicator for a single worker, 2000-25

Source: Authors’ calculations based on Taxing Wages 2026.

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Figure 2.12. Change in the progressivity indicator for a one-earner couple with children, 2000-25

Source: Authors’ calculations based on Taxing Wages 2026.

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Conclusion

Labour taxation lies at the heart of the interaction between fiscal policy, economic growth and inequality, directly through its redistributive impact and indirectly through its influence on the behaviour of firms and workers. This Special Feature uses the detailed information provided by countries to Taxing Wages and an indicator developed for previous editions of the report to analyse the statutory progressivity of labour taxation in OECD countries, where a tax system is considered progressive if average tax rates increase with income.

In particular, the chapter examines the progressivity of the tax wedge with reference to earnings between 50% and 500% of the average wage in each OECD country and on average across the OECD. It carries out this analysis for six household types, including those with and without children, and breaks down the progressivity indicator to show the relative weight of the different components of the tax wedge. It also examines the progressivity of the tax wedge across seven earnings intervals within the overall range, and it shows how progressivity evolved between 2000 and 2025.

Consistent with previous editions of Taxing Wages, the chapter finds that OECD labour tax systems are progressive on average albeit with significant variation between countries. Tax wedge progressivity among OECD countries is driven by different factors. Progressive tax schedules clearly contribute to progressivity, while tax reliefs (allowances and credits) and transfers have very strong progressive impacts due to their amounts being generally fixed regardless of earnings. Means-testing that reduces the amount of reliefs or transfers received by higher earners further increases progressivity.

On average across OECD countries, most of the progressivity is found in the lowest two earnings intervals and in particular the lowest one (between 50% and 67% of the average wage). In most countries, workers whose earnings increase from 50% to 67% of the average wage experience the largest rise in their tax wedge as the tax reliefs from which they benefit tend to diminish sharply as a proportion of their tax liability.

The tax treatment of households with children tends to be more progressive than the treatment of those without. As highlighted above, for most household types with children, cash benefits are the main driver of the progressivity, while for those without children, personal income tax is the primary factor. Social security contributions are progressive at lower earnings levels and regressive for higher earners in many OECD countries, a consequence of the contribution floors and ceilings. Nonetheless, country-specific dynamics vary and average results need to be interpreted carefully.

This analysis finds that labour taxation has become more progressive on average since 2000, especially at lower earnings intervals and for households with children, due to the introduction or the increase in the value of reliefs and transfers. The largest increase in the progressivity of the tax wedge occurred between 2014 and 2019. Between 2022 and 2025, progressivity slightly decreased on average across OECD countries, reversing an increase of similar magnitude between 2019 and 2022 during the COVID-19 pandemic.

Over the entire period under consideration, labour taxation progressivity remained almost unchanged for workers earnings above the average wage on average, with the tax wedge becoming slightly less progressive (i.e., more regressive) for households earning between 300% and 500% of the average wage. This reinforces the finding that, within the earnings range analysed, fiscal policy reforms in OECD countries have generally reduced the tax burden for lower earners while the average tax wedge for medium and high earners remained more consistent across time.

Caution should be taken when using the results shown in this chapter to make conclusions about the progressivity of fiscal systems in OECD countries. This analysis focuses exclusively on the taxes due on labour income and it does not take into account the redistributive impact of other taxes paid by households, such as value-added tax or capital taxes. Moreover, Taxing Wages does not contain information on all the measures in place to support households’ consumption. As a possible avenue of future research, the analysis in this chapter could be combined with information on the impact of other policies as well as data on pre- and post-tax incomes to show the extent to which the statutory progressivity of labour taxation is reflected in de facto redistributive outcomes.

Annex 2.A. Additional figures

Annex Figure 2.A.1. Boxplot of the progressivity indicators for all countries, by earnings interval and household type, 2025

Note: In the one-earner married couples, the spouse is assumed to be inactive. In the two-earner married couples, the spouse is assumed to be gainfully employed at 67% of the average wage, regardless of the earnings level of the principal. The boxes span over the observation from the 25^th to the 75^th percentile, while the limits of the top and bottom whiskers refer to the bottom 10^th percentile and the top 90^th percentile, respectively. The countries marked on the figure represent the datapoint above and below these thresholds.

Source: Authors’ calculations based on Taxing Wages 2026.

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Annex Figure 2.A.2. Decomposition of the change in the progressivity indicator by period, single worker

Single worker earning between 50% and 500% of the average wage without children

Source: Authors’ calculations based on Taxing Wages 2026.

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Notes

← 1.  While the focus of this review is labour taxation, other parts of the tax system can significantly influence the post-tax distribution of incomes. Value-added taxes, for example, tend to be slightly regressive when assessed relative to current income but are broadly proportional or even mildly progressive when measured relative to current expenditure, with substantial variation across OECD countries depending on rate structures and the range of goods and services subject to reduced rates or exemptions (Thomas, 2022[26]). Evidence suggests that accounting for consumption taxes raises measured income inequality, offsetting up to a third of the redistributive impact of direct taxes and transfers on the Gini coefficient (Blasco et al., 2023[25]). Other taxes, including corporate income taxes, property taxes and taxes on capital income, have also been shown to affect distributional outcomes (OECD, 2024[24]).

← 2.  Tax and transfer policies have been widely found to affect primarily the extensive margin, i.e., the decision to take up work (OECD, 2024[31]). Effects on the intensive margin, such as hours worked or work effort, are more nuanced (Chetty, Friedman and Saez, 2013[22]; Villamaina and Acciari, 2025[23]). While low-income single workers tend to have higher labour supply elasticities, increases in the marginal tax rates of individuals at the top of the income distribution appear to have limited impact on their labour supply (Bargain, Orsini and Peichl, 2014[21]) (Saez, Slemrod and Giertz, 2012[27]).

← 3.  Broader growth effects of redistribution depend not only on how revenues are raised but also on the impact of the public spending that they finance (Ostry, Berg and Tsangarides, 2014[30]).

← 4.  This result also partly reflects the importance of taxable income among high-income households, which limits the pass-through from statutory to average tax rates.

← 5.  The chapter refers the ‘progressivity indicator’ throughout. This is analogous to the terms ‘progressivity indicator for the tax wedge’ and ‘tax wedge progression’ used in previous Taxing Wages analysis.

← 6.  The authors acknowledge that the design of the tax system in OECD countries is likely to be endogenous with respect to their respective income distributions. As these distributions are not necessarily aligned, this could introduce biases into the comparison of statutory progressivity indicators.

← 7.  Similarly to the approach adopted with non-standard tax reliefs, indirect taxes such as value-added tax are not included in the progressivity indicator used throughout this chapter, as they are not covered by the Taxing Wages calculations. While these methodological choices limit the applicability of the results, the comparability across OECD countries is ensured by the use of a common and long-standing approach to modelling fiscal policies.

← 8.  Due to how it is computed, the progressivity indicator is not as sensitive as the marginal tax wedge to changes in statutory rates that occur in a given country’s tax schedule. While the marginal tax wedge is usually computed for very small earnings increments, the progressivity indicator compares the change in the overall tax wedge across an earnings range. Nevertheless, discontinuous changes in the rate applied might still influence the progressivity indicator if either end of an earnings interval happens to coincide with the thresholds in the tax schedule. Estévez-Schwarz and Sommer (2018[32]) provide a comparative analysis of the effects of applying a smooth tax function on the personal income tax rate among four OECD countries.

← 9.  The Special Feature analysis in Taxing Wages 2025 (OECD, 2025[20]) on the impact of tax allowances and tax credits on the personal income tax rate across OECD countries discusses the effect of these policies on the progressivity of personal income taxes between 67% and 300% of the average wage. The results show that, on average across OECD countries, both tax credits and tax allowances contribute to increasing progressivity, while tax allowances are sometimes regressive, depending on their characteristics.

← 10.  See note 9.

← 11.  Workers in Chile and Colombia are also required to pay social security contributions to non-governmentally owned funds, which are categorised as “non-tax compulsory payments” in Taxing Wages and thus not included in the standard results (https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/tax-policy/non-tax-compulsory-payments.pdf).

← 12.  The progressivity in the first two earnings intervals is positive in Estonia due to the presence of a means-tested tax allowance.

← 13.  More precisely, in the Netherlands the (means-tested) tax credits are applied partly on the final tax liability and partly to the employee social security contributions. The share of the tax credits applied to reducing the latter contributes to increasing progressivity for low-earnings workers.

← 14.  In Spain, social security contributions include the “Mecanismo de Equidad Intergeneracional”, an additional contribution that varies with earnings introduced to reinforce the long-term sustainability of the pension system. While the Taxing Wages calculations consider the base rate of this contribution (for both employees and employers), they do not consider the increased contribution rates for higher earnings intervals. These additional rates would contribute to increase the progressivity of employee and employer social security contributions for workers earning more than 167% of the average wage, partially countering the regressive dynamic highlighted in Figure 2.5 and Figure 2.6.

← 15.  The observed impact of social security contributions on the progressivity indicator is due to the fact that, for workers earnings below a minimum threshold, employers are required to cover the difference between the social security contributions paid by employees and the contribution floor. As earnings increase, the proportion of this amount covered by the employer decreases, resulting in a reduction in the progressivity of the tax burden.

← 16.  Please see the 2021 and 2022 editions of Taxing Wages for more information about how labour taxation in OECD countries responded to the COVID-19 pandemic (OECD, 2021[28]; OECD, 2022[29]).

← 17.  In Spain, the sharp increase in the progressivity indicator for the first earnings interval reflects the introduction of the work-related deduction targeted at low to moderate earned income, which contributed to reducing the tax liability of eligible workers. This policy increased measured statutory progressivity primarily at the lower end of the earnings distribution through the reduction of the average tax wedge on low earners, with the goal of supporting labour market participation.