Today the levels are between half and a third of what they used to be at the highest point.
The second graph shows estimates of top marginal income tax rates for a larger selection of countries years and As we can see, the sharp trend of reducing top marginal tax rates after the s was a global phenomenon, expanding both developed and developing countries. The interpretation of these graphs often leads to confusion. A common mistake is to interpret the top marginal tax rate as the effective rate of taxation applied to the rich. This is incorrect, because the top marginal rate applies as the 'marginal' name suggests only to the last portion of income earned by the rich.
And by implication, lower marginal rates do not directly imply lower economic incidence of taxation for the rich. Having said that, additional evidence does seem to suggest that the above-mentioned reduction of top marginal income tax rates has been one of the ingredients contributing to lower effective tax rates for the rich. We discuss this additional evidence in the next section.
This means that marginal rates apply only to the portion of taxable income that exceeds the lower income threshold for that marginal rate. In contrast, the average, or effective rate of taxation is defined as the ratio of total taxes paid by total income earned — that is, the share of income that is paid in income taxes. The distinction between these two concepts is important because for many people, a portion of their income is taxed at one rate, and the rest is taxed at another rate.
Using the US federal income tax schedule, the following visualization shows the marginal and average rates for the income of married couples filing jointly. These figures use estimated tax brackets for from the Tax Foundation. This visualization shows that average and marginal income tax rates are clearly different. Specifically, while both average and marginal rates are increasing, average rates are smoother and generally lower.
A similar chart showing marginal and average rates for the income of single individuals — as opposed to married couples filing jointly — can be found here. We have already outlined above the main instruments used by governments to collect revenue. Here we want to provide more detail regarding different forms of 'commodity taxation', in particular consumption taxes. In the OECD nomenclature, consumption taxes taxes on production, sale, transfer, leasing and delivery of goods and rendering of services include two sub-categories: general taxes on goods and services taxes on general consumption including VAT, sales taxes and other general taxes on goods and services as well as taxes on specific goods and services consisting primarily of excise taxes as well as customs and import duties and taxes on specific services, such as taxes on insurance premiums and financial services.
For more details see OECD The key distinction between VAT and excise taxes is that VAT is paid by consumers, while excise taxes are paid by producers.
In other words, they have a different statutory burden. As we discuss below, the statutory burden of a tax does not necessarily describe who really bears the economic burden of the tax. The following visualization provides an overview of revenues from the taxation of goods and services during the period The estimates account for sales taxes, value added taxes and excise duties; and are expressed as a share of GDP. The data shows some cross-country heterogeneity; although relative to revenue from income taxation , heterogeneity in commodity taxation is much smaller, especially among high-income countries.
We have already noted that taxes on goods and services tend to be less important in high-income countries than in low-income countries. Here we want to focus on the relative importance of different forms of commodity taxation. The figures correspond to OECD averages and all values are expressed as percentage of total taxation. These figures give us an idea of the evolution of the importance of different forms of commodity taxation in OECD countries.
As we can see, the composition of consumption taxes has fundamentally changed in the OECD over the last few decades: the weight of consumption taxes has been stable, because the substantially increased importance of VAT has been effectively balanced by a reduction in importance of other taxes on specific goods and services, the bulk of which are excise taxes. The following visualization shows how value added tax rates compare between world regions.
These figures come from the World Development Report , and include corporate tax rates as a benchmark. This visualization shows that value added tax rates are similar in developed and developing countries, which suggests that the differences we observe in revenue between regions, are likely due to differences in compliance.
The decline of the USSR and the end of the Cold War allowed for German .. of the German Empire); divided into four zones of occupation (UK, US, USSR, and .. and low corporate tax rates also make Switzerland one of the world's most. will not be undervalued for U.K. and German bank clients. Specifically . Because different tax rates may apply on each type of investment.
In fact, this is not only specific to commodity taxation — Besley and Persson 13 show that developed countries tend to raise much more income-tax revenue than developing countries with comparable statutory rates, which suggests that the tax base in low-income countries is more strongly affected by compliance difficulties.
In summary, the evidence suggests that fiscal capacity i. Most VAT systems around the world adopt multi-rate systems with one or more reduced rates applying to particular goods. As can be seen, in most countries that use VAT exceptions, reduced rates tend to apply to basic products in which low-income households spend a larger share of their income such as food ; as well as to products with perceived positive social spillovers such as newspapers, books and medicines. Many countries also use reduced rates for other reasons.
From this chart, it seems like providing support to specific industries, such as tourism, is another important factor considered by governments. Taxes affect economic interactions by changing the relative prices of goods and services in the economy. This implies that, to assess who bears the burden of a tax, it is not sufficient to look at statutory tax rates. A similar argument can be made if the tax is levied on consumers, since in a market economy the tax will lower demand, and this will have a consequence also for producers. The key point is that, in order to analyze the economic incidence of taxation in a market economy, we need to look beyond statutory tax rates.
Below we provide concrete examples of how economists try to estimate the economic incidence of taxation.
To do this, they make the following assumptions: i Taxes on earnings are borne by workers; ii Taxes on individual income are borne by the households that pay them; iii Taxes on corporate income are borne by individuals in proportion to their capital income; iv Taxes on consumption are borne by individuals in proportion to their consumption. Based on these assumptions, the CBO calculates total tax contributions as a share of pre-tax income for different segments of the pre-tax income distribution.
The following visualization, plotting CBO estimates of average tax rates, shows that the federal tax system in the US has been generally progressive: those located higher in the ranking of incomes, pay a higher share of their income in taxes. Across time, we can also see that progressivity has not been constant — the period saw important reductions in tax rates for the rich, without comparable reductions for the poor.
The hike in tax rates towards the end corresponds primarily to significant changes in tax rules in The visualization above shows that, according to the estimates from the Congressional Budget Office , richer individuals in the US generally tend to bear a larger burden of taxation than the poor. Here we examine whether this is also true within the top of the income distribution — that is, whether the 'ultra rich' shoulder a larger tax burden than the 'rich'. The next visualisation, from Piketty and Saez 19 shows estimated average tax rates in France, the US and the UK, at two points in time: and Notice that these are average rates i.
Again, we can see in these estimates that the systems in question are progressive — increasingly higher percentiles in the income distribution pay increasingly higher effective rates of taxation. However, the lines are much flatter in , which shows that the systems have become less progressive at the top: the average share of income paid by those at the very top of the income distribution has dropped substantially since This is important because, as the authors of the figure point out, over the same period pre-tax income inequality grew significantly: a few very rich individuals at the very top are accumulating an increasingly large share of national incomes.
An important point that should be kept in mind is that these estimates are not directly comparable to those from the Congressional Budget Office discussed above, because they do not take into account government transfers, and rely on different methodological assumptions — for example, they do not consider excise taxes but they do consider estate taxes.
For more details see Piketty and Saez We have already pointed out that rich countries tend to collect much higher tax revenues than poor countries. The visualization below provides further evidence of the extent of this correlation. The vertical axis measures GDP per capita after accounting for differences in purchasing power across countries , while the horizontal axis measures tax revenues as share of GDP. The vertical axis is expressed by default in a logarithmic scale, so that the correlation is easier to appreciate — you can change to a linear scale by clicking the 'Log' button.
We can see that there is a strong positive correlation: richer countries tend to have higher tax revenues as a share of their GDP. And this is also true within world regions represented here with different colors. We argued above that the efficiency of tax collection is a strong predictor of cross-country differences in tax revenues — rich countries have more capacity to extract revenues. As historical data shows, this capacity was largely possible because, throughout the 19th century and up until the first half of the 20th century, these countries found increasingly cheaper ways to collect taxes.
The following visualization, from Lindert 21 , shows that the US and the UK saw steep declines in the administrative cost shares of indirect tax collection across the 19th century and the early 20th. As we can see, the cost of collections dropped, from over 4. Cross-country differences in tax revenues are linked to the capacity of countries to implement efficient tax collection systems. Here we provide evidence suggesting that political factors — such as the extent of institutionalized constraints on the decision-making powers of policy makers — help shape the level and evolution of fiscal capacity of countries.
The following chart, from Besley and Persson 23 , plots the cross-country relationship between political institutions and tax revenues. This indicator relates to government as a whole all government levels and is measured in percentage both of GDP and of total taxation. Find a country by name. Show baseline: OAVG. Width: px Preview Embedding. Tax on personal income Related topics Government.
Latest publication Revenue Statistics Publication Indicators Tax revenue Tax on personal income Tax on corporate profits Social security contributions Tax on payroll Tax on property Tax on goods and services Tax wedge. Germany has four tax brackets. You may also be required to pay the church tax Kirchensteuer if you are affiliated to a religious community, which amounts to 8 or 9 per cent of your income tax, depending on where you live. All individuals resident in Germany receive a tax identification number Steueridentifikationsnummer to ensure their unique identification within the tax system.
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