Comparative Analysis of Personal Income Taxation

• Author: Rodica Pripoaie
• Pages: 142-160

European Integration - Realities and Perspectives. Proceedings 2018

142

Comparative Analysis of Personal Income Taxation

Rodica Pripoaie1

Abstract: This paper presents a comparative analysis of personal income taxation in different countries. This

is an important component of fiscal policy and directly influences the budget revenues. Over time there have

been several taxation systems, and today they differ from state to state. The statistics contain detailed

information on income ta x on individuals and their income, including gender, age, income and source of

income. This work shows how the income distribution of individual taxpayers has changed over time, as well

as the differences and similarities of personal income taxation in the different countries.

Keywords: fiscal policy; comparative analysis of fiscal policy; personal income; taxation

JEL Classification: C15; E62; E63; H20; H24

1. Introduction

All people pay taxes, regardless of nationality, sex or religion, so taxation is part of our lives, of all.

Employees pay from wage in addition to personal income tax and a series of social contributions that,

although not of a fiscal nature, are payment obligations that affect net income and which have the

highest percentage of taxes and fees paid.

Worldwide, there is a trend towards fiscal harmonization, but taxes differ greatly from one country to

another, and even within the EU Member States. Thus, the rate of taxation differs greatly depending

on the degree of development of the country concerned, in the sense that it is lower in developing

countries and higher in developed ones.

The income tax on individuals has a very wide scope and differs greatly in terms of tax rates that can

be proportional or progressive. This is a direct tax, paid and directly supported by the individual,

which makes it the basic element of any fiscal system, especially if it is also considered that it

contributes, on average, by about 25-30% to the formation of tax revenues of a country.

The European Union has no role to establish taxes. The rate of tax is decided by the governments of

the Member States. The EU’s role is to ensure that national taxes are in accord with EU policies and

do not discriminate individuals.

1 AssocТate Professor, PСD, Dunărea de Jos University of Galati, Romania, Address: 47 Domnească Street, 800008, Galati,

Romania, E-mail: 1rodica.pripoaie@ugal.ro.

ISSN: 2067 – 9211 Performance and Risks in the European Economy

143

2.1. The Organization for Economic Co-operation and Developme nt (OECD) Taxing Wages

The tax wedge is defined by http://www.oecd.org/tax/tax-policy/tax-database.htm as “tСe combined

central and sub-central government income tax plus employee and employer social security

contribution taxes, as a percentage of labor costs defined as gross wage earnings plus employer social

security contributions. The tax wedge includes cash transfers.”

The all-in tax rate is calculated by http://www.oecd.org/tax/tax-policy/tax-database.htm as: “tСe

combined central and sub-central government income tax plus employee social security contribution,

as a percentage of gross wage earnТngs.”

Personal average tax rate (or “taб burden”) is the term defined by http://www.oecd.org/tax/tax-

policy/tax-database.htm used when personal income tax and emploвees’ social security contribution

are expressed as a percentage of gross wage earnings.

2.2. Evolut ion of Personal Income Tax Rates and Thresholds in OECD Countries during the

Period 2000-2017

Taxing Wages 2018 shows that the “net personal average tax rate” – income tax and social security

contributions paid by employees, minus any family benefits received, as a share of gross wages – was

25.5% across the OECD. This OECD-wide average rate, calculated for a single person with no

children earning an average wa ge, has remained stable in recent years, but it covers country averages

that range from below 15% in Chile, Korea and Mexico to over 35% in Belgium, Denmark and

Germany. (http://www.oecd.org/newsroom/workers-in-oecd-countries-pay-one-quarter-of-wages-in-

taxes.htm)

2.3. Central Government Personal Income Tax Rates and Thresholds

The table below shows the rates of personal income tax and the taxable income to which these legal

rates apply. Also, table presents basic/standard tax allowances, tax credits and tax rates.

The informations are valid for a person without dependent persons.

Tapered means that the tax exemption is reduced as income increases.