The average worker in OECD countries pays just over one-quarter of their gross wages in income taxes and social security contributions (SSCs), a ratio that has remained relatively stable over the last two decades. On average, the net personal average tax rate (NPATR), defined as the sum of personal income tax (PIT) and employee SSCs, minus cash benefits as a percentage of gross wage earnings, was 25.5% for the average single worker in OECD countries in 2017. Belgium had the highest rate, at 40.5%, with Denmark and Germany being the only other countries with rates of more than 35%. Chile and Mexico had the lowest NPATRs at 7% and 11.2% respectively. Korea was the only other country with a rate of less than 15%.

Between 2016 and 2017, the NPATR on the average worker increased in 20 countries, decreased in 13 countries and remained unchanged in two countries (Chile and Hungary). In most countries where the NPATR changed, the change was due to changes related to the PIT, even though only one country increased their statutory rates (i.e. the Netherlands). Most PIT increases were driven by a higher proportion of earnings becoming subject to tax as the value of tax-free allowances and tax credits fell relative to earnings. Lower SSCs also played a significant role in decreasing the NPATR in Canada.

A special feature focuses on the impact of the tax system on the disposable income of households with children. On average across the OECD, households with children face a lower NPATR than the same household type without children, and the difference is considerably more pronounced for a single worker at a lower level of wage income. This observation is also true in almost all OECD countries: in 2016, 31 countries had lower NPATRs for a two-earner married couple with children relative to the same couple without, and 34 had lower NPATRs for the single worker with children at two-thirds of average wage than for the single worker without. Differences in NPATRs are due primarily to higher cash benefits for households with children. In many countries, these are combined with reductions in personal income taxation due to joint taxation or higher allowances and credits for families with children.

When employer costs and taxes are included, the effective tax rate on the labour costs of the average worker, or tax wedge, was 35.9%, a slight decrease since 2016. The tax wedge measures the difference between the labour costs to the employer and the corresponding net take-home pay of the employee. It is calculated as the sum of the total PIT and SSCs paid by employees and employers, minus cash benefits received, as a proportion of the total labour costs for employers.

Although the OECD average decreased by 0.1 percentage point in 2017, 18 OECD countries experienced a higher tax wedge on the average worker compared with 2016, while 16 countries experienced reductions. In three cases, the decreases were significant: Hungary (-2.10 percentage points), Luxembourg (-1.76 percentage points) and Finland (-1.18 percentage points). There were no increases exceeding one percentage point.