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We'd like to understand how you use our websites in order to improve them. Register your interest. In this paper we decompose the change of the aggregate tax burden on labor in Austria. Our approach allows us to identify the impact of parametric changes in the tax and social security system, of base broadening measures, and of changes in the wage structure.
The aggregate implicit tax rate increased by more than 10pp since the mids. Most of it can be attributed to changes in payroll taxes and social security contributions payable by employers and employees. The increase in the implicit tax rate was also driven by base-broadening measures affecting the income tax and slightly dampened by changes in the wage income structure, most importantly the very weak growth in average wages since the s.
Moreover, while the contribution of changes in the income tax parameters to the increase in the aggregate implicit tax rate has been small, they were an important factor for the non-uniform development of the tax burden within the income structure.
This is a preview of subscription content, log in to check access. Rent this article via DeepDyve. Source: European Commission. Source: Own calculations based on Statistics Austria data. Source: Own calculations. Note: Incomes percentiles from are deflated in the past according to the development of the index of agreed minimum wages.
Lines are based on the income structure of Dots are based on the income structure of the respective year. The simulations have been conducted for a private-sector white-collar worker without any special deductions. Note: Incomes are deflated in the past according to the development of the index of agreed minimum wages. Note: The simulations have been conducted for a private-sector white-collar worker without any special deductions.
Source: Statistic Austria, Ministry of Finance, own calculations. Another reason for doing so is that neither national accounts nor the Austrian tax statistics disentangle the labor and the capital income component of self-employment income.
While we show the total tax burden as percentage of total labor cost i. This is in line with the decompositions we are going to show in Sect. In this paper we do not focus on marginal effective tax rates and behavioral reactions which could only be meaningfully addressed by incorporating the role of cash benefits in the analysis. Note that other government activities such as capital taxation or cash and in-kind benefits are beyond the scope of this paper, but they also exhibit redistributive effects.
The tables also contain a mapping of the used terminology between German and English. This aspect is ignored in this paper. This is not accounted for in this paper. Data sources are a reply from the Ministry of Finance to a parliamentary inquiry from mid and the Monthly Bulletin of Statistics Austria. Only the data for to is based on ESA We linked this data to the one from to via the growth rates of the latter data coming from ESA This contributes to social security contributions being somewhat higher in the wage tax statistics than in national accounts, with the opposite being the case for income tax on wages see also Table 5.
Therefore, we typically look at the sum of income taxes and social contributions by employees such that these effects cancel each other out. Furthermore, both the wage tax statistics and the national accounts point to a higher share of taxes on wages within personal income taxes than the calculations of the European Commission.
We do respect the exact treatment of deductibility of compulsory social security contributions incl. Note that the weak development in the quartiles between and may be partly driven by the lower coverage of the wage tax statistics before see also Table 5. See also appendix Fig. We assume throughout the paper that the employers of the analyzed fictional employees were only affected by the rate increase, but not by the base broadening.
There have been a few measures with a limited impact on overall revenue but a large impact on the burden of certain groups, however. The progressivity measure following Kakwani is defined as the concentration coefficient of all taxes and contributions paid minus the Gini coefficient of pre-tax incomes.
The concentration coefficient of tax payments is computed the same way as a Gini coefficient of tax payments with the exception that Lorenz curve is plotted against the cumulative share of persons ranked by pre-tax incomes instead of persons ranked by tax payments. The Kakwani index is increasing in progressivity and is positive negative if the tax system is progressive regressive.
The Gini coefficient of pre-tax labor incomes increases in our synthetic data sets from 0. As the tax base broadening measures in particular affected high income earners, Fig. Note that we defined the income tax effect to include changes in the income tax liability from changes in social security contributions because of the tax base effects. This can be seen by splitting 4. In this definition fiscal drag therefore also includes additional revenue from increases in real wages in contrast to a more narrow definition only resulting from changes in consumer prices.
Actually, from to the contribution of changes to the income distribution has been positive 18 years in a row. The effects of income distribution and average wages due to small structural break in wage tax statistics between and have been netted as well as the effects of income taxes and fiscal drag as bars would be very large otherwise. We do not claim that the level of the residual in a given year can only be explained by base broadening in the income tax.
Conceptually the residual also has to reflect some of the approximation errors. They stem from employees only working in parts of the year, small differences between the simulated and the actual wage distribution Sect. Additional income tax credits e. Therefore, it does not reduce total wage taxes in either the wage tax statistics nor in national accounts and so it does not impact our simulations. The single-earner tax credit would be potentially relevant for the level of the residual, but due its small size and little variation over time it is unlikely to impact the change in the residual too much.
For example, since the most important changes have come into effect in strong increase for single earners with more than 1 child and in abolishment for single earners without children and in both years the year-on-year changes in the grey and the black line in Fig. According to Lehner , some these reforms were implemented to prevent a further erosion of the income tax base, as collective agreements and labor contracts tended to increase income components which were tax-exempt or subject to reduced tax rates.
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All remaining mistakes are ours. Correspondence to Philip Schuster. Disclaimer This paper does not necessarily express the views of the Oesterreichische Nationalbank, the Eurosystem or the Austrian Fiscal Advisory Council.
For income and payroll taxes, we took the respective law per 1 January of the respective year with adjustments in case of important retroactive measures like the tax cut in ; for social security contributions we also take account of intra-year-changes e.
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Explaining the evolution of the Austrian implicit tax rate on labor from 1976 to 2016
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