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Taxes on labor income for the average worker across Organisation for Economic Cooperation and Development (OECD) nations continued to decrease for the third consecutive year during 2016, dropping to 36 percent of labor costs, according to a new report.
Taxing Wages 2017 measures the level of personal income tax and social security contributions in each OECD country by calculating the "tax wedge" - the total taxes on labor income paid by employees and employers, minus family benefits received, as a percentage of the labor costs of the employer. The tax wedge is calculated for a range of different family types and at different income levels.
Last year's decline follows a multi-year trend, partially reversing tax wedge increases reported in the years immediately following the global economic crisis.
The decrease in the average tax wedge seen since 2013 is partly explained by reforms in some countries to reduce taxes on labor income, the OECD said. For example, in 2016 Belgium and Austria both experienced significant reductions in their tax wedges as a result of labor tax reforms.
Although the OECD average tax wedge decreased slightly in 2016 compared to 2015, the tax wedge actually increased slightly in 20 OECD countries, while it declined in 14 others. Most of the changes were driven by changes in personal income tax.
"Taxes on labor income for the average worker across the OECD are still falling slightly, although this decline is partly driven by reforms in a handful of countries," said Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy and Administration. "Boosting the work incentives of low and middle income earners by reducing the tax wedge on labor incomes continues to be an important way of encouraging inclusive growth."
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