Income tax on wage earnings, child cash transfers and contributions to finance social security systems continue to vary widely from country to country. Average tax rate figures, calculated as a percentage of gross wage earnings of the average production worker, known as the APW for short, also differ significantly across various types of households.
The graph illustrates the combined burden of income tax and employee social security contributions, less child cash transfers, at the APW wage level in OECD countries in 1998. The average burden for single individuals without children ranges from 2.6% in Mexico to 43.4% in Denmark. With the exception of Turkey and Greece, reduced average tax rates apply to married one-earner couples with two children, with negative rates found for Iceland (-3.9%), the Czech Republic (-3.4%) and Luxembourg (-0.2%). This means that cash benefits in these countries bump up net take-home pay so much so that it exceeds gross wage earnings.
The underlying data show income tax as a percentage of gross APW wage earnings ranging from a low of zero in Mexico to 33.7% in Denmark, in the case of single persons without children. Add on employee social security contributions and the average tax burden of a single person without children exceeds 40% in Denmark (43.4%), Germany (42.1%) and Belgium (41.8%). At the other extreme, the average tax rate excluding transfers remains below 20% in Mexico (2.6%), Korea (6.4%), Japan (13.8%), Poland (15.8%), Portugal (18.1%) and Greece (18.3%). Cash transfers are found to lower average tax rates, in some cases significantly, in those countries with child cash benefit programmes.
For an exhaustive comparative study on taxation and other deductions on wages across the OECD area, see the new report, Taxing Wages, available at www.oecd.org/bookshop
©OECD Observer No 220, April 2000