Tax and benefit systems play a crucial role in redistributing income, ensuring economic stability and promoting social cohesion. However, their reduced capacity to tackle inequalities has been one of the factors behind the widening income gap between the rich and poor. It is crucial to strengthen redistributive policies by making social protection systems more accessible and inclusive while reinforcing financial work incentives and ensuring fiscal sustainability.
The OECD carries out analysis of tax and benefit systems to help shape future reforms according to global best practices. We provide information on the tax and benefit rules that apply to working-age individuals and their families, and a user-friendly web calculator allows users to estimate their tax obligations and benefit entitlements across countries.
Learn about the generosity of income support systems and how tax and benefit policies affect people's incentives to work.
As social protection strategies seek to adapt to changing individual circumstances, and to major social, economic and fiscal trends, too little is known about the cost effectiveness of existing tax-benefit policies.
The OECD supports governments in ‘future proofing’ benefit systems. We assess whether those requiring support can access it, and we examine concrete possibilities for making income protection more inclusive and sustainable as well as options for promoting higher levels of employment and better-quality jobs.
The lives and circumstances of jobless people, or those with intermittent, low-paid or unstable employment, are rarely simple. They are often confronted with complex employment barriers, such as a lack of skills, health problems, financial disincentives or care responsibilities. Understanding these barriers is essential for designing policies to overcome them, but good-quality information such obstacles is currently missing.
The OECD seeks to fill this gap and shed light on the web of individual barriers that stand in the way of stable employment. The main objective is to assist policymakers in identifying untapped sources of employment growth and in making existing programmes more cost-effective.
Income support programmes for jobseekers typically restrict support to those who make a specific effort to find work. Such eligibility criteria aim to strengthen incentives to search for and take up employment. They may also serve to reduce demands on benefit systems and associated employment services. However, strict requirements can unintentionally exclude some people from financial and re-employment support, e.g., by discouraging them from applying.
The OECD assesses the strictness of countries’ requirements for receiving unemployment benefits, including the type of job offers that claimants need to accept, requirements for reporting on job-search efforts, obligations to participate in work or training programmes, and sanctions for failing to meet these requirements.
Unemployment benefits play a vital role in protecting individuals against income shocks during times of crisis. Recent labour market upheavals, as well as new insights emerging from research, have highlighted the need for more tailored benefit systems, able to deliver timely benefits in a worker-centred, recession-ready way.
The level of income support provided to jobseekers and their families varies widely across OECD countries. For example, the share of disposable in-work income maintained after a certain period of unemployment, known as net replacement rate, ranges from 50% to 80% for a single low earner in the initial phase of unemployment.
Evolving labour markets arguably blur lines between traditional employment and non-standard forms of work such as platform work and the gig economy. As a result, tying social-protection entitlements, such as unemployment benefits, to people’s employment status and contributions becomes more difficult and risks leaving some groups without sufficient protection. In this context, it is important to ensure that those with high poverty risks receive basic support regardless of their past employment history or current work patterns.
On average in the OECD, the level of income support (non-contributory) for a jobless family with two children and no access to unemployment benefits is less than 40% of median disposable income. This is more than ten percentage points below the OECD relative poverty line.
When earnings, or earnings potential, are low, the financial gain from staying in or seeking employment are often limited. Incentivising work can be made more challenging with high tax burdens on labour income and with social benefits designed to provide income safety-nets for those with no or very low earnings.
Across OECD countries, when a jobseeker receiving unemployment benefits takes a low-paid full-time job, up to 75% of his or her earnings can be lost to higher taxes and lower benefits, resulting in a net gain of only 25%. This “participation tax rate” is slightly lower for jobseekers who are only eligible for non-contributory benefits (at around 60%). The financial incentives to take up gainful work opportunities at the bottom of the income ladder can be enhanced through in-work benefits or refundable tax credits. In the case of second-earners, work incentives can be strengthened by relying on individual rather than family-based taxation.
