Part I

Overall tax revenue

Table 1.4: Tax wedges for a single example worker at two-thirds of average earnings
2000-2010, in %

O
v
e
r
a
l
l
t
a
x
r
e
v
e
n
u
e

BE
BG
CZ
DK
DE
EE
IE
EL
ES
FR
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
NO
IS

2000
51.3
40.0
41.3
40.8
47.5
39.8
27.4
34.3
34.8
47.4
43.5
16.7
42.2
42.9
31.5
51.4
16.6
42.0
43.2
37.0
33.2
44.7
42.6
40.6
43.0
48.6
29.1
35.1
19.8

2001
50.7
36.9
41.3
40.1
46.6
39.3
24.6
34.3
35.3
47.6
43.1
17.0
42.0
42.9
29.7
50.9
17.0
38.9
42.9
36.8
32.2
45.2
43.5
41.2
41.4
47.8
28.6
35.2
20.9

2002
50.5
36.2
41.5
39.5
47.1
40.6
23.2
34.3
35.8
47.4
43.0
17.3
42.2
43.1
27.4
48.2
17.7
39.1
43.1
36.7
32.9
44.6
43.5
40.6
40.9
46.8
28.7
35.2
22.6

2003
49.6
36.0
41.7
39.4
47.9
40.9
22.9
34.4
34.8
45.0
41.6
18.6
41.4
40.9
27.8
44.5
17.4
40.0
43.5
37.0
32.8
43.4
43.5
40.8
40.0
47.0
30.3
34.9
23.8

2004
49.0
35.8
41.9
38.9
46.9
39.6
22.7
34.4
35.3
42.4
41.9
18.6
41.9
41.6
28.1
44.8
17.6
40.8
43.9
37.2
32.8
42.9
43.6
39.2
39.4
47.2
30.5
35.0
24.5

2005
49.3
36.3
42.0
38.9
47.3
38.1
22.4
34.4
35.7
41.4
42.2
11.9
41.8
42.6
28.7
43.1
17.9
41.6
43.3
37.5
32.1
42.4
41.8
34.8
39.5
46.6
30.5
34.2
24.7

2006
49.4
31.5
40.0
38.9
47.4
37.3
21.5
34.4
35.9
45.5
42.5
11.9
41.8
40.6
29.1
43.3
18.6
33.1
43.7
37.8
32.3
42.2
41.3
35.2
38.8
45.9
30.6
34.3
24.8

2007
49.6
32.3
40.5
38.9
47.0
37.6
20.2
34.4
35.7
45.3
42.6
11.9
41.1
41.2
29.9
46.0
17.9
33.1
44.1
37.1
32.9
41.8
40.9
35.5
38.6
43.3
30.8
34.2
23.4

2008
50.2
35.1
40.1
38.5
46.6
37.0
20.1
34.4
34.0
45.3
43.3
11.9
39.9
40.3
28.2
46.7
17.9
33.4
44.4
33.6
32.9
40.9
40.3
36.0
38.6
42.5
29.7
34.2
23.6

2009
49.4
33.9
38.7
38.0
46.0
37.7
22.7
34.4
34.3
45.1
43.5
11.9
41.5
38.9
27.3
46.2
17.7
33.2
43.2
33.2
32.7
43.1
39.7
34.4
36.9
41.3
29.3
33.7
22.2

2010
49.5
33.9
38.9
36.7
44.9
38.6
23.4
34.4
36.4
45.5
43.6
11.9
41.5
38.9
27.5
43.6
17.7
34.0
43.3
33.4
32.8
43.1
38.5
34.5
36.3
40.6
29.6
33.7
25.2

EU-27
EA-17

39.0
37.4

38.4
36.8

38.2
36.7

37.9
36.6

37.7
36.2

37.2
35.4

36.7
35.2

36.7
35.1

36.4
35.0

36.1
34.7

36.0
34.9

Note:

Difference
2000-2010
-1.8
-6.1
-2.4
-4.1
-2.6
-1.2
-4.0
0.1
1.6
-1.9
0.1
-4.8
-0.7
-4.0
-4.0
-7.8
1.1
-8.0
0.1
-3.6
-0.4
-1.6
-4.1
-6.1
-6.7
-8.0
0.5
-1.4
5.4
-3.0
-2.5

DE, LV, LT, AT, RO and SI: data refer to 2008, CY data refer to 2007

Source: Commission services

Cut in tax wedge since 2000

The discussion in the preceding section is based on the
ITR on labour, which give a picture of the average tax
burden on labour across all income classes. However,
even at an unchanged overall tax level, the burden of
taxation may be shifted between high and low-income
taxpayers resulting not only in redistribution but
notably also in a different impact on employment. In
particular, over the last decade policymakers have often
resorted to cuts in labour taxes that are targeted to the
bottom end of the wage scale in order to boost
employability of low-skilled workers. To evaluate
progress in this direction, this section looks at the
evolution of the tax wedge i.e. the difference
between labour costs to the employer and the
corresponding net take-home pay of the employee.
Table 1.4 focuses on the 'Tax wedge on low wage
workers', which is the tax wedge for a single worker

without children at two-thirds of average earnings and

its developments since 2000(16).
The figures display a long and steady downward trend
indicating a clear impact from targeted cuts in taxes
and social security contributions more intensively at the
beginning and towards the end of the decade. While the
tax wedge is lower in 21 Member States in 2010
compared to 2000, the reductions appear to be
particularly large in Sweden, the Netherlands, Hungary,
Finland, Slovakia and Bulgaria. Among the countries
that have increased the tax wedge in this period, Spain
shows the biggest increase with 1.6 percentage points.
Targeted measures at low-wage earners
during the crisis
Graph 1.15 compares the trends over time in the tax
wedge indicator and the ITR on labour (with
1996 = 100). For each year EU-27 arithmetic averages
(16) Pre-2000 data are not fully comparable due to changes in the definition of the
average wage (see OECD, 2006, and European Commission, 2007).

34

Taxation trends in the European Union