Labour taxes, which include personal income taxes, social security contributions and payroll taxes, account for a significant share of total tax revenues on average in OECD countries. However, their levels and design vary widely across countries. Taxes on labour income can affect individuals’ decisions to participate in the labour market or invest in human capital, as well as employers’ decisions to hire workers, though these incentive effects vary depending on types of taxpayers and how tax policies are designed.
Personal and property taxes
Individuals pay a range of taxes on their income and assets, which vary across countries. These taxes represent a major share of countries’ overall tax revenues, and their design and implementation are key to the equity and efficiency of tax systems. The OECD produces comparative analysis intended to better inform governments’ tax policy choices in this area.
Key messages
Personal capital income (e.g. interest income, dividends and capital gains) often benefits from preferential tax treatment compared to labour income. This may be in the form of lower tax rates or deductions, credits and exemptions. OECD work has shown that preferential capital income taxation affects the equity of tax systems as capital income is concentrated at the top of the distribution and can encourage shifts between labour and capital income. Balancing these considerations with other policy objectives, such as promoting savings and investment, is a key challenge for policy makers.
Households are subject to a wide variety of taxes on their assets, including property taxes, transaction taxes, inheritance/estate and gift taxes, and – in a few countries – wealth taxes. OECD work has shown that many of these taxes have narrow tax bases, however, which limits their revenue potential, equity and efficiency. A range of OECD studies offer guidance as to how the design of these taxes could be improved.
High-net worth individuals represent a unique tax segment. The composition of their income and wealth varies widely from that of other individuals. The structure of their activities often involves a higher degree of complexity and they are typically more mobile across borders. OECD work assesses the specific challenges associated with taxing high-net worth individuals, with a view to identifying domestic reform options as well as areas where strengthened international coordination may be needed to ensure more effective taxation at the top of the income and the wealth distribution.
Economies are faced with significant structural changes, including population ageing, automation, the rise of artificial intelligence and cross-border mobility. All of these may have an impact on tax bases and the distributional impacts of tax systems. A better understanding of how structural changes may affect personal tax bases and of the potential role of tax policies in addressing these challenges is key to designing more resilient tax systems.
