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It is also important to note that the tax burden on families is often lower than the burden on single, childless workers earning the same pretax income.Īs noted in our primer 3 on the tax wedge on labor, there is a negative relationship between the tax wedge and employment. However, the average worker does not necessarily escape from being burdened by these taxes. In many countries, taxes are progressive, which means that higher-income workers are taxed at higher rates. After accounting for VAT and sales taxes, which reduce the purchasing power of earnings, the OECD average tax wedge was 40.1 percent in 2020. The most recent data available shows that, on average, single workers with no children, earning a nation’s average wage in the OECD, faced a tax burden from income and payroll taxes of 34.6 percent in 2020. The Organisation for Economic Co-operation and Development (OECD) reports data on the composition of the tax burden on labor across 37 developed countries. These taxes combined make up the tax burden on labor both by taxing wages directly and through the tax burden on wages used for consumption.

Individual income taxes, payroll taxes, and consumption taxes like value-added taxes (VAT) make up a large portion of many countries’ tax revenue.

Accounting for VAT and sales tax, the average tax burden on labor in 2020 was 40.1 percent, 5.5 percentage points higher than when only income and payroll taxes are considered.

Such marginal tax wedges might deter workers from pursuing additional income and working extra hours.

In 2020 an Italian worker making €38,396 (US $56,839) faced a marginal tax wedge as high as 117 percent on a 1 percent increase in earnings.

Between 20, the OECD average tax burden decreased by 0.39 percentage points and COVID-19 measures accounted for roughly one-fifth of that.

In general, countries with higher tax wedges provide greater tax relief for families with children.

In 2020, the average tax burden from income and payroll taxes for families in OECD countries was 24.4 percent, 10.2 percentage points lower than for single taxpayers without children.

In 2020, a worker in Belgium faced a tax burden seven times higher than that of a Chilean worker.

The average tax burden among OECD countries varies substantially.

The average OECD tax burden on labor has dropped 1.8 percentage points over the past two decades.

Before accounting for VAT and sales tax, the average tax burden a single average wage earner faced in the OECD was 34.6 percent of pretax earnings in 2020.

Value-added (VAT) and sales taxes also place a tax burden on take-home pay used for consumption.

Average wage earners in the OECD have their take-home pay lowered by two major taxes: individual income and payroll (both employee and employer side).

COVID-19 Support Measures Had Little Impact on the Tax Burden.Most Notable Changes in the Tax Burden since 2000.- Comparing a Single Worker with No Children to a Married Worker with Two Children.- The Economic Incidence of Payroll Taxes.