REWARDING JOBS: Government Policy and Work Incentives
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1 O ECD W orld Forum on K ey Indicators S tatistics, K now led g e an d P o licy P alerm o , 1 0 -1 3 N ovem ber 2004
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Christopher Heady OECD, Centre for Tax Policy and Administration Herwig Immervoll OECD, Employment, Labour and Social Affairs. REWARDING JOBS: Government Policy and Work Incentives. Introduction Methodology Illustrations Taxation of low-paid workers Tax treatment of families - PowerPoint PPT Presentation
Transcript of REWARDING JOBS: Government Policy and Work Incentives
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 1
OECD World Forum on Key Indicators
Statistics, Knowledge and Policy
Palermo, 10-13 November 2004
OECD World Forum on Key Indicators
Statistics, Knowledge and Policy
Palermo, 10-13 November 2004
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 2
REWARDING JOBS:Government Policy and Work Incentives
Christopher HeadyOECD, Centre for Tax Policy and Administration
Herwig ImmervollOECD, Employment, Labour and Social Affairs
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 3
Outline
• Introduction• Methodology• Illustrations
• Taxation of low-paid workers• Tax treatment of families• Tax advantages for two-earner couples• Net replacement rates• Low-wage ‘traps’ and marginal effective tax rates• Escaping poverty
• Conclusions
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 4
Introduction
• Benefit dependency
• Need for incentives & adequate income levels
• Role of policy indicators• Identify sub-groups• Measure progress• International comparison
• Taxing Wages
• Benefits and Wages
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 5
Methodology
• Both are based on ‘typical families’• Internationally comparable policy indicators• Focus on policy rules rather than policy outcomes:
abstracts from population differences• Tax-benefit position in a particular situation• Plus: effects of transitions financial incentives
• Taxing Wages• Taxes (including social security contributions) and universal
benefits only • Incomes from 67% to 167% of APW
• Benefits and Wages• Adds means-tested and unemployment benefits• Covers lower income levels
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Monitoring policies:Complementing macro- and outcome-based indicators
Average wedge
Marginal wedge
Average wedge
Marginal wedge
BELGIUM 47.5 69.7 -2.5 3.9
FINLAND 39.5 51.1 -3.0 -3.2
FRANCE 37.6 74.1 -1.9 1.6
GERMANY 46.7 59.8 0.2 -0.4
HUNGARY 41.0 55.3 -5.2 -0.9
ITALY 41.3 52.6 -2.0 2.4
KOREA 12.9 15.7 -2.3 -2.0
MEXICO 12.4 17.4 2.5 0.5
NETHERLANDS 37.6 54.1 -3.1 -0.2
SWEDEN 44.8 51.4 -2.9 -2.1
UNITED STATES 27.1 34.1 -1.9 -0.5
2003 Values Increase since 2000
Tax Wedge for Low-wage Workers
Aggregate 'Implicit Tax Rate' on Labour
43.0
47.6
40.2
35.6
31.3
49.2
25.4
39.5
16.0
4.0
Source: OECD, various years, Taxing Wages; Implicit Tax Rates based on an updated version of Carey and Rabesona (2002).
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 7
Tax treatment of families
Personal Taxes by Single Individuals and Families
-5
0
5
10
15
20
25
30
35
SINGLE FAMILY
Source: OECD, 2003, Taxing Wages.
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 8
Tax advantages for two-earner couples
Source: OECD, 2003, Taxing Wages.
Tax advantage of two-earner couples(compared to single-earner couples, 2002)
COUNTRIES100% APW 133% APW 167% APW
Australia 3.2 6.6 10.3
Denmark -2.5 2.8 6.8
Finland 10.9 10.3 13.8
France 3.0 0.9 0.3
Germany 0.9 0.2 -2.4
Japan -0.4 -0.1 0.6
Mexico 10.6 9.0 10.9
Slovak Republic 2.0 1.5 2.6
United States 0.0 0.0 0.0
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 9
Employment transitions:Net replacement rates
Source: OECD, 2004, Benefits and Wages.
Initial phase of unemployment, APW level: 2001 and 2003Couple with 2 children, not entitled to social assistance benefits
0
20
40
60
80
100
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 10
Long-term unemployment
Source: OECD, 2004, Benefits and Wages.
0
20
40
60
80
100
0 5 10 15 20 25 30 35 40 45 50 55 60Time (months)
0
20
40
60
80
100FRA DEU GRC HUN ISL IRL ITA
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Taxes and Benefits at different earnings levels: Germany, 2002
-20
-10
0
10
20
30
40
50
0 10 20 30 40 50 60 70 80 90 100 110 120 130
% of APW
1,0
00
EU
R p
er
ye
ar
Source: OECD, 2004, Benefits and Wages.
A more complete picture:How much remains in workers’ pockets?
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 12
Adding up taxes and transfers:Low-wage ‘traps’ & marginal effective tax rates
Taxes and Benefits at different earnings levels: Germany, 2002
-20
-10
0
10
20
30
40
50
0 10 20 30 40 50 60 70 80 90 100 110 120 130
% of APW
1,0
00
EU
R p
er
ye
ar
-50
-25
0
25
50
75
100
125
Mar
gin
al E
ff. T
ax R
ate
Source: OECD, 2004, Benefits and Wages.
OECD World Forum “Statistics, Knowledge and Policy”, Palermo, 10-13 November 2004 13
Income Adequacy
Earnings required to escape poverty: Couple with 2 children, 2001
0
20
40
60
80
100
120
% o
f A
PW
Source: OECD, 2004, Benefits and Wages.
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Conclusions
• OECD’s Taxing Wages & Benefits and Wages provide policy-relevant indicators that are suitable for international comparisons of tax and benefit structures
• Different indicator(s) appropriate for different policy issues
• OECD models contain details of policy rules examine different family and labour market situations
• Flexible framework that can generate additional indicators as the need arises
• Comparing resulting indicators across countries: ‘league tables’?
