Marginal Taxes on High Incomes in the EU

Key Findings

• Throughout Europe, there may be an ongoing marketing campaign for increased taxes on high-income people, sustained by means of public and political advocacy.
• Excessive marginal taxA tax is a compulsory fee or cost collected by native, state, and nationwide governments from people or companies to cowl the prices of basic authorities providers, items, and actions.
  charges deter funding and innovation essential for financial development and job creation.
• Implementation of the sort of tax improve carries challenges equivalent to capital flight, tax evasion, and enforcement complexity, making them inefficient instruments for revenue redistribution.
• Variations in marginal tax charges have an effect on the place high-income people stay and make investments, highlighting the potential have to maintain decentralized tax insurance policies within the EU.
• The Tax Basis’s new Excessive-Revenue Tax Competitiveness Index exhibits that international locations with much less distortive tax programs entice extra funding and carry out higher economically.
• Efficient high-income tax implementation is advanced. As a substitute, well-designed tax programs that promote financial development and social growth enable for enhanced exercise, which results in extra authorities income that may then be used for redistributive functions.
• Excessive tax charges cut back financial competitiveness and hurt your entire inhabitants. To sort out inequality, governments ought to focus extra on focused spending and fewer on inefficient taxation proposals.

Introduction: Assessing the Ongoing Marketing campaign for Extra Taxes on Excessive-Revenue Earners

The current push to extend taxes on the rich has gained vital traction throughout Europe. This development has been motivated by teams and people who argue that wealth and revenue inequality are rising and hope to design fairer tax programs that may result in extra equitable social outcomes. The European Fee launched a Tax Observatory in 2021 to review potential practices of “tax abuse.” Latest contributions associated to tax evasion emphasize the necessity to undertake more practical taxation programs to shut current loopholes that enable for tax evasion and avoidance.[1]

Notably, some high-profile economists and policymakers have proposed vital will increase to the highest marginal tax charges on private revenue, suggesting charges as excessive as 70-80 p.c for the best earners and drawing consideration to the hyperlink between financial effectivity and fairness in tax programs.[2]

A notable growth within the wealth taxation discourse is advocacy from the very people who can be most affected by such taxes. For instance, a bunch of over 250 millionaires publicly urged for increased taxes on the wealthy, selling a marketing campaign titled “Proud to Pay Extra.” Their argument relies on the ethical stance that addressing financial inequality is each a duty and a necessity for the well being of society, thus assuming that increased taxes would carry down stated disparities. This motion displays a shift in public discourse, as those that might be deprived by stated coverage adjustments publicly help them on behalf of the “better good.”[3]

The momentum of those proposals is additional propelled by calls from the EU’s tax specialists for a minimal wealth taxA wealth tax is imposed on a person’s web wealth, or the market worth of their complete owned belongings minus liabilities. A wealth tax may be narrowly or broadly outlined, and relying on the definition of wealth, the bottom for a wealth tax can fluctuate.
fee of two p.c on the ultra-wealthy. This initiative builds on earlier initiatives, such because the 15 p.c minimal tax for multinationals that’s slowly being applied. This implies a sluggish however continued drive towards increased taxes on the wealthy.[4]

By way of public notion, it’s clear that many see progressive taxation as a instrument to fight rising inequality and finance social spending. Moreover, financial arguments for such taxes are additionally being mentioned; as an illustration, some have argued that progressive taxes may elevate substantial revenues with out harming financial development, offered they’re designed to reduce avoidance and don’t excessively penalize productive funding.

Nonetheless, proof exhibits that the implementation of such tax insurance policies comes with financial penalties. For instance, there are various technical hurdles that include assessing wealth, dangers of responses equivalent to capital flight, and the potential for authorized challenges towards such income measures. Furthermore, the diploma of worldwide coordination required to forestall tax evasion provides an extra layer of complexity.[5]

Total, the financial narrative that pushes for increased taxes on the wealthy in Europe is characterised by a fancy interaction of moral justifications, financial arguments that largely give attention to lowering inequality, and a few sensible concerns. The evolving panorama means that future tax reforms in Europe are more likely to contemplate better progressivity, so the impact of stated reforms have to be correctly assessed.

The significance of conducting a radical evaluation of taxes on the rich in Europe is underscored by the complexity of the subject in addition to the potential financial and social penalties that such fiscal measures could carry. Firstly, an in-depth examination is essential to judge the precise effectiveness of those taxes when it comes to income assortment and their anticipated affect on lowering inequality. That is pivotal as a result of, though the intention behind these taxes is to advertise better ranges of financial fairness, the actual fact stays that there are a number of real-world examples that present how such reforms have typically led to unintended destructive penalties, exacerbating different financial points.

Secondly, an in depth evaluation helps determine potential response results equivalent to tax evasion and avoidance, which have a tendency to extend with increased tax charges. Excessive-income people typically have extra sources and capabilities to shift their belongings to lower-tax jurisdictions or to make the most of advanced authorized mechanisms that enable them to scale back their tax burden. This in the end questions the potential income raised by stated taxes and in addition highlights to what extent such drive for increased progressivity can erode the present tax baseThe tax base is the whole quantity of revenue, property, belongings, consumption, transactions, or different financial exercise topic to taxation by a tax authority. A slim tax base is non-neutral and inefficient. A broad tax base reduces tax administration prices and permits extra income to be raised at decrease charges.
and result in vital losses of presidency revenues which are in the end very important for financing important public providers.

Furthermore, excessive taxes on capital and excessive incomes can have destructive impacts on key financial variables equivalent to funding and innovation. Excessive-net-worth people and companies typically spend money on high-risk, high-reward initiatives equivalent to new corporations and startups or new applied sciences. A very burdensome tax regime may deter these investments, which, in the long run, would negatively have an effect on financial development and job creation. Due to this fact, it’s essential to steadiness the necessity for revenues with sustaining an setting conducive to development, funding, innovation, and enterprise growth.

Lastly, the implementation of taxes on the rich requires consideration of the broader financial and monetary context throughout Europe, the place tax programs fluctuate considerably throughout international locations. Aggressive tax coverage takes these variations under consideration and avoids harmonization makes an attempt that may create distortions within the EU single market. As an illustration, inadequate or inappropriate fiscal coordination can result in imbalances amongst Member States and in the end undermine the aims of cohesion and solidarity of the European Union.

Regardless of the argued potential advantages, tax harmonization throughout the EU typically attracts vital criticism, primarily as a result of it tends to contain growing taxes, which may have a detrimental impact on financial effectivity and efficiency. Critics argue that harmonization could result in a “race to the highest” in tax charges, as international locations converge on increased ranges of taxation, thereby stifling financial dynamism and lowering incentives for funding. Furthermore, such insurance policies may infringe on nationwide sovereignty, as international locations lose the power to set tax insurance policies that replicate their particular financial circumstances and priorities, which poses broader political questions. In essence, whereas harmonization goals to create fiscal unity, it in the end dangers imposing a one-size-fits-all method that’s seemingly not appropriate for all Member States throughout the very various financial panorama of the European Union.

A cautious and complete research of those points is important to plot tax insurance policies that aren’t efficient and sustainable.

The construction of this report is organized into 4 distinct sections that goal to comprehensively deal with the taxation of excessive incomes. The primary part introduces the problem of taxing excessive incomes and supplies a radical literature evaluation on the results of such measures. This evaluation encompasses each the theoretical underpinnings and empirical research that illustrate the affect of high-income taxes on financial conduct and revenue distribution. The second part presents an summary of high-income taxes throughout Europe, detailing variations in tax charges and constructions amongst completely different international locations. Within the third part, the results of high-income taxes are quantified, using quantitative strategies to research the info collected from varied European nations to determine the precise outcomes of the proposed tax adjustments. The fourth and ultimate part concludes the paper by summarizing the findings and providing insights into the implications of high-income taxes for policymakers and stakeholders within the realm of public finance.

What Analysis Tells Us in regards to the Impact of Taxes on Excessive Incomes

The thought of making use of low taxes to increased incomes comes from supply-side financial concept. Extra particularly, it acknowledges that high earners are very delicate to tax adjustments and reminds us that they signify a big fraction of nations’ financial savings and entrepreneurship. Due to this fact, elevating their taxes could disincentivize entrepreneurial exercise and deform funding choices which are important to financial development. This will additionally discourage investments and entrepreneurial actions that in the end profit your entire inhabitants and result in increased tax revenues on account of sustained financial development.

Santo Milasi and Robert J. Waldmann, utilizing a panel knowledge pattern of OECD international locations, have discovered that the utmost growth-maximizing tax charges have to be analyzed rigorously, as the degrees of taxation that might probably be utilized could result in migration results in addition to asset rotation methods that may in the end result in a lot decrease efficient tax charges.[6] Due to this fact, it could be extra acceptable to use the kind of reforms that broaden the tax base and restrict the incentives for tax avoidance.

The difficulty of the mobility and sensitivity of high earners has been extensively studied within the literature. For instance, Akcigit et al. (2016) analyze the impact of high revenue taxes on the worldwide migration of inventors.[7] The authors use a panel of worldwide inventor knowledge from U.S. and European patent places of work and monitor their worldwide location patterns for the reason that Seventies all the way in which as much as the mid-2010s.

The authors discover a destructive correlation between increased tax charges and the proportion of high-quality overseas traders situated in a rustic in addition to the proportion of high-quality home inventors who stay of their nation. They then examine how inventors within the high 1 p.c of the revenue distribution react to adjustments in tax coverage, when it comes to their citations relative to different teams of inventors. They discover an elasticity with respect to the online tax fee of 0.02. Which means if the online tax fee will increase by 1 p.c, the proof on this research means that 0.02 p.c of the inventors within the high 1 p.c of the revenue distribution will react. This elasticity is increased for overseas inventors, at 1.04. That’s, with tax fee will increase of 1 p.c, 1.04 p.c of overseas inventors depart the nation.

In different phrases, to extend the variety of inventors within the high 1 p.c by 1 p.c, marginal charges must be diminished by 10 proportion factors for home inventors and by 26 proportion factors for overseas inventors. These elasticities are just like these discovered by Kleven et al. (2013) in a research of soccer gamers and their switch historical past.[8]

Though the proportion of inventors who relocate on account of excessive tax charges could appear small, the related value may be vital. Inventors are key drivers of financial development, and their migration in response to tax insurance policies can signify a considerable value to tax progressivity. Moreover, inventors generate vital spillover results on their geographically shut friends, making it much more essential to draw and retain them domestically. Due to this fact, shedding even a small variety of inventors can result in a notable lower within the tax base and negatively affect financial development.

These outcomes recommend that it’s essential to think about high-income taxpayers as a really distinctive group when calibrating optimum taxation fashions, primarily by contemplating the optimistic spillovers they generate on the remainder of their geographically shut friends. Because of this, growing tax charges on excessive incomes can have a destructive affect on entrepreneurship and in the end hinder financial development.

Mathilde Muñoz addresses how revenue taxes have an effect on the migration choices of wealthy taxpayers in Europe.[9] The research focuses on whether or not excessive taxes immediate these residents to relocate to international locations with extra favorable tax regimes, analyzing patterns of migration inside EU Member States. Not like earlier analysis that focuses on particular sectors (equivalent to inventors or soccer gamers), Muñoz’s work analyzes a broader and extra consultant group of the inhabitants—the highest p.c of earners throughout 21 European international locations—filling a major hole within the empirical proof on tax-induced worldwide migration.

Muñoz’s outcomes reveal that the situation choices of high-income taxpayers are certainly considerably influenced by revenue tax charges. The elasticity of the variety of excessive earners with respect to the online tax fee varies between 0.1 and 0.3—and exceeds 1.0 for overseas taxpayers. Which means if the online tax fee will increase by 1 p.c, the proof on this research means that 0.1 to 0.3 p.c of excessive earners will react by relocating or adjusting their taxable revenueTaxable revenue is the quantity of revenue topic to tax, after deductions and exemptions. For each people and firms, taxable revenue differs from—and is lower than—gross revenue.
, and within the case of overseas taxpayers, the determine rises to 1 p.c. Migration elasticities differ broadly throughout Member States, suggesting different incentives to undertake nationally aggressive tax insurance policies inside Europe.

Muñoz concludes that migration responses to tax reforms are a crucial issue for European financial policymaking. Though the magnitude of the affect of tax-induced migration on the whole tax base is small, there are notable heterogeneities in taxpayers’ sensitivity to taxes, which may result in destructive results when tax charges are elevated with out contemplating stated variations. The research underscores the necessity to keep away from these insurance policies that will end in vital aggressive disadvantages for the international locations that undertake them.

There’s additionally particular proof for European nation samples that deal with how tax schemes affect the migration and wage choices of excessive earners. These research present detailed insights from nationwide contexts equivalent to Spain, the UK, and the Nordic international locations, highlighting the completely different responses relying on native tax insurance policies and the financial construction of every area.

Kleven et al. (2014) discover the affect of the preferential tax schemes for foreigners in Denmark, which permits high-income new immigrants to be taxed at a preferential flat fee for as much as three years.[10] The research finds that this scheme doubled the variety of extremely paid foreigners in Denmark in comparison with barely lower-paid foreigners ineligible for the scheme. This implies a really giant elasticity of migration with respect to the online tax fee between 1.5 and a couple of. This means {that a} 1 p.c improve within the web tax fee would lead 1.5 to 2 p.c of high-income immigrants to both relocate or determine towards shifting to Denmark.

Advani et al. (2023) analyze the affect of tax reform on the migration of the super-rich within the UK, significantly the results of adjusting the tax therapy of offshore investments for non-domiciled residents (“non-doms”).[11] Previous to the 2017 reform, offshore funding returns of non-doms weren’t topic to tax. The reform diminished the efficient web tax fee for individuals who had been within the UK for not less than 15 of the final 20 years, resulting in a modest improve within the migration fee. Nonetheless, vital will increase in reported revenue and taxes paid have been discovered, which exhibits how taxpayers don’t all the time modify to keep away from the sort of tax improve.

Equally, Agrawal and Foremny (2018) look at migration in response to adjustments in high marginal tax charges on account of a Spanish tax reform that enabled autonomous communities to set their very own tax charges.[12] Utilizing individual-level Social Safety knowledge, the authors discover {that a} 1 p.c improve in a area’s web tax fee relative to different areas will increase the likelihood of people shifting to that territory by 1.7 proportion factors. In addition they estimate an elasticity of 0.85 within the variety of high-income taxpayers with respect to web tax charges, that’s, a 1 p.c improve in marginal tax charges produces a 0.85 p.c motion of taxpayers to different areas, suggesting a notable response to regional tax differentials.

The evaluation of the literature on high-income taxes highlights a number of crucial points associated to elevating tax charges for high earners. First, there may be appreciable consensus that top marginal charges are more likely to deter funding and innovation, particularly as a result of high-income people are typically extra cellular taxpayers and thus are typically extra delicate to adjustments in tax coverage. Analysis signifies that increased tax charges can result in a flight of expertise and capital to jurisdictions with extra favorable tax regimes, decreasing the tax base within the unique nation and probably affecting its prospects for long-term financial development. Nonetheless, this doesn’t recommend a necessity for international wealth tax harmonization. Rising marginal tax charges can result in inefficiencies and prices within the type of slower development, and they don’t essentially resolve redistribution issues.[13]

In actual fact, proof means that public spending is extra environment friendly in attaining better redistribution.[14] Furthermore, completely different international locations have distinctive financial circumstances and coverage priorities, making localized tax insurance policies more practical for addressing their particular challenges and targets.

Additionally, along with all of the earlier factors, the literature means that, whereas will increase in high-income taxes may generate further income within the quick run, they’ll additionally incentivize tax avoidance and evasion, complicating the administration and effectivity of those tax programs. The elasticity of taxpayer conduct with respect to adjustments in tax charges is proven to be vital, suggesting that fee will increase couldn’t solely improve migration for these impacted but in addition result in asset rotation methods that goal to reduce the efficient affect of tax will increase.

Lastly, the literature reviewed highlights the significance of contemplating the broader implications of financial effectivity when designing tax insurance policies. Placing a steadiness between maximizing tax revenues and sustaining an setting that fosters financial development and boosts competitiveness is not any simple process. On this case, proof means that elevated revenues could not materialize as anticipated, whereas a decline in financial exercise seems extremely possible. Though progressive taxes on excessive incomes are seen as instruments to fight inequality, policymakers should acknowledge their poor monitor document and destructive affect on funding and financial innovation.

Excessive Revenue Taxes throughout the EU

This part supplies a basic overview of taxes on excessive incomes, updating and increasing earlier estimates by Fritzon and Lundberg (2019).[15] To estimate the tax burden of upper-income taxpayers, revenue tax charges can be mixed with Social Safety contributions in addition to consumption taxes. This method is barely completely different from the papers cited in our literature evaluation, however we contemplate it to be an necessary step towards offering an summary of the total tax burden borne by higher-income people.

As well as, we incorporate different related metrics that in the end affect the quantity of taxes paid by higher-income earners. Extra particularly, along with marginal tax charges and total tax burden, we goal to reply the next questions:

• On what taxable base is the highest marginal revenue tax fee utilized?
• What proportion of the inhabitants is taxed on the high marginal revenue tax fee?
• How progressive is the tax system? That’s, what’s the distinction between the tax burden on common incomes and the tax burden on excessive incomes?

Every time doable, probably the most present knowledge (as much as 2024) is used. Not all international locations have ultimate info obtainable as much as the present 12 months. That is the case for the implicit consumption taxA consumption tax is usually levied on the acquisition of products or providers and is paid immediately or not directly by the buyer within the type of retail gross sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an revenue tax the place all financial savings is tax-deductible.
charges, estimated by the European Fee, for which the newest estimates come from 2022. The supply of our knowledge comes from varied private and non-private establishments, to enhance the robustness of the calculations offered.[16]

In some circumstances, equivalent to Croatia or Spain, regional governments have regulatory capability to set revenue tax charges. For these circumstances, we offer the highest statutory fee that may apply if a regional authorities doesn’t modify the default marginal fee set by the central authorities. This means that we could also be underestimating the marginal fee in some areas, which must be taken under consideration when making any inference and public coverage suggestions about these nations and their tax insurance policies.

For the estimation of social contributions, we comply with the Fritzon and Lundberg methodology. Due to this fact, these international locations that set a cap to create a ceiling limiting the whole quantities paid must be understood as having deferred revenue that decreases on the margin of marginal taxation. In distinction, nations that don’t cap contributions paid by excessive incomes are seen as international locations creating pure taxes.

For the marginal charges of consumption, we use the common efficient charges. That is easier and a superb approximation of the marginal charges borne by taxpayers on the high ranges of revenue as a result of efficient charges on consumption don’t fluctuate by family revenue stage, as López et al. (2024) present.[17]

Thus, to estimate the efficient marginal tax feeThe marginal tax fee is the quantity of further tax paid for each further greenback earned as revenue. The common tax fee is the whole tax paid divided by complete revenue earned. A ten p.c marginal tax fee implies that 10 cents of each subsequent greenback earned can be taken as tax.
(EMTR) for high revenue earners, we replicate the formulation developed by Fritzon and Lundberg:

And private tax is computed as follows:

Marginal Charges on High Revenue Earners

Each Desk 1 and Determine 1 present the ultimate knowledge for the 27 international locations of the European Union, along with the knowledge on revenue taxes, worker social contributions, and payroll and consumption taxes which were used for our ultimate estimation of the outcomes.[18] The very first thing that stands out is the notable variations that may be discovered between international locations.

As an illustration, Belgium (73.22 p.c) and Bulgaria (27.10 p.c) have a 46.12 proportion level hole, whereas the common EMTR for all Member States is 57.92 p.c. This disparity exhibits the existence of very various fiscal insurance policies throughout the EU, as particular person nations tailor their tax constructions to steadiness their want for revenues with the precise conditions and traits of their native economies.

Efficient marginal tax charges mix varied tax parts, together with revenue tax, worker social contributions, payroll taxes, and consumption taxes. Our holistic method supplies a extra correct depiction of the tax burden on high-income earners than simply wanting on the high statutory tax charges. As an illustration, international locations like Belgium and Slovenia, which seem on the increased finish of the tax spectrum, implement a mixture of excessive revenue and consumption taxes in addition to substantial payroll and social contributions. This displays a coverage orientation towards very excessive progressive taxation.

Conversely, nations equivalent to Bulgaria and Romania exhibit a lot decrease efficient charges, suggesting a unique fiscal technique that seemingly displays the necessity to prioritize financial development and competitiveness by means of decrease taxation. This will entice overseas funding and high-skilled labor, though it additionally limits the federal government’s potential to fund public providers extensively by focusing taxation on high earners.

The knowledge, mirrored in Desk 1 and Determine 1, is pivotal for understanding the affect of tax insurance policies on financial conduct, funding choices, and social fairness inside Europe. It highlights the continuing debate between making certain financial dynamism and addressing revenue inequality by means of taxation, a steadiness that every nation strikes in its distinctive context throughout the broader European framework.

Fiscal Attractiveness for Excessive-Revenue Earners, past Efficient Marginal Tax Charges

You will need to perceive the brink at which the highest marginal fee applies as a result of it immediately determines the revenue stage at which the best tax burden is incurred. This threshold influences the situation and funding choices of people and firms looking for to optimize their tax liabilities. If the brink is excessive, then high-income people can earn a major quantity earlier than being topic to high marginal tax charges, probably making a rustic extra engaging to rich residents and stimulating financial exercise and development. Conversely, a decrease threshold can result in the extra fast utility of excessive tax charges, discouraging the buildup and retention of wealth and expertise inside a rustic and decreasing its total tax competitiveness.

Think about a easy instance. Suppose Nation A has a marginal tax fee of fifty p.c that applies to all revenue over €100,000. In distinction, Nation B applies the identical 50 p.c tax fee however solely on revenue over €200,000. On this situation, a high-income particular person incomes €250,000 would pay completely different quantities in taxes in every nation as a result of completely different thresholds:

• In Nation A, the person would pay 50 p.c on €150,000 (the quantity over €100,000), leading to €75,000 in taxes.
• In Nation B, the person would pay 50 p.c on €50,000 (the quantity over €200,000), leading to €25,000 in taxes.

Thus, Nation B could also be seen as extra fiscally engaging to high-income earners due to its increased threshold at which the highest marginal fee applies, permitting them to retain extra of their revenue earlier than hitting the highest tax bracketA tax bracket is the vary of incomes taxed at given charges, which usually differ relying on submitting standing. In a progressive particular person or company revenue tax system, charges rise as revenue will increase. There are seven federal particular person revenue tax brackets; the federal company revenue tax system is flat.
.

Now contemplate Nation A with a high private revenue tax fee of 20 p.c, utilized to all revenue over €10,000. This construction simplifies the tax system considerably as a result of it primarily treats a overwhelming majority of earners the identical approach, making use of what’s successfully a flat taxAn revenue tax is known as a “flat tax” when all taxable revenue is topic to the identical tax fee, no matter revenue stage or belongings.
fee past a really low revenue threshold. This may ease administration and understanding of the tax code for taxpayers and the federal government alike.

Alternatively, Nation B with a high fee that applies solely to revenue over €1 million targets a a lot smaller, wealthier portion of the inhabitants. This requires a a lot increased high tax fee to boost the identical quantity of income because the flat fee system, on condition that fewer individuals fall into this class. One of these progressive system is aimed toward fairness, asking extra from those that can afford to pay extra, but it surely complicates the tax code and might result in potential avoidance methods by these affected.

Utilizing the Tax Basis’s Worldwide Tax Competitiveness Index (ITCI) as our reference, Nation A, with its easier tax system that applies a comparatively low high tax fee of 20 p.c ranging from an revenue of €10,000, would rating higher within the rankings. This method, by making use of a flat tax fee from a low threshold, simplifies the administration and understanding of the tax code considerably. Regardless of its broad utility, this setup requires fewer excessive charges on excessive incomes to attain the identical stage of income, successfully lowering the tax burden on increased earners and enhancing total fiscal competitiveness. This simplicity might be seen favorably on the ITCI as a result of it effectively raises income with out excessively burdening any particular revenue group, aligning properly with the ideas of tax competitiveness that favor simplicity and broad-based levying.

Each tax programs exhibit distinct benefits and downsides. In Nation B, the place the highest tax fee is utilized solely to incomes over €1 million, the system may be significantly engaging to high-income earners who earn across the excessive threshold as solely a small portion of their revenue is taxed on the highest fee. This progressive construction, which lessens the tax burden on a lot of the inhabitants whereas focusing on the rich, may be seen as selling equity and fairness.

Nonetheless, the draw back of such a system lies in its complexity. Implementing a number of tax brackets introduces administrative challenges and complicates compliance, probably resulting in inefficiencies and inspiring tax avoidance methods. This complexity could be a vital disadvantage for nations trying to streamline their tax programs and improve the convenience of doing enterprise.

Given these concerns, a super tax system may contain a diminished tax fee mixed with a broad tax base, approximating a flat tax. This method minimizes the tax burden on high-income earners with out overly complicating the tax code, selling simplicity and effectivity in income assortment. Such a system balances the necessity for equity with the sensible advantages of a simple tax construction, aiming to draw funding and stimulate financial exercise whereas making certain a good contribution from all taxpayers.

On this part, along with presenting the revenue stage at which the highest marginal tax fee is utilized, a comparability can be made between the tax wedgeA tax wedge is the distinction between complete labor prices to the employer and the corresponding web take-home pay of the worker. It’s also an financial time period that refers back to the financial inefficiency ensuing from taxes.
on common revenue and that on excessive incomes. Marginal and common tax wedges are essential indicators for understanding the tax burden on labor. The common tax wedge refers back to the complete proportion of taxes and social safety contributions on employment taken from the common labor revenue of a employee, together with each the taxes paid by the worker and people which are the duty of the employer. Alternatively, the marginal tax wedge describes the share of further taxes and social safety contributions utilized to the final euro earned; that’s, the extra tax paid on a marginal improve in revenue.

Analyzing the ratio between the marginal tax wedge and the common tax wedge is essential because it reveals the progressivity of a tax system, indicating how further revenue is taxed relative to common earnings. This complete evaluation supplies an in depth view of how tax burdens are distributed throughout completely different revenue teams and highlights the fiscal strain confronted by common versus high-income earners in various tax regimes.

These statistics function essential benchmarks for understanding the competitiveness and ease of a tax system for high-income earners. By analyzing each the brink for high tax charges and the comparative tax burden on completely different revenue ranges, stakeholders can higher assess the effectivity and fairness of tax insurance policies. This info is instrumental in evaluating whether or not a tax system is designed in a approach that’s engaging to excessive earners, probably influencing their choices to work, make investments, and reside in a specific jurisdiction.

To provide the info on the revenue stage from which the marginal tax fee is utilized, a number of steps are essential. First, the common full-time adjusted wage per worker is estimated from Eurostat. The formulation to acquire the info is as follows:

Then, by means of the sources consulted within the earlier part, we get hold of the revenue stage from which the marginal fee is relevant.[20] Lastly, we divide the common full wage adjusted with the extent of the brink to acquire the ratio of the highest revenue tax fee threshold.

Alternatively, to measure the ratio of the marginal fee over the common tax wedge, we comply with the technique utilized by Mengden (2023).[21] From the OECD, we get hold of the ratio of the marginal and common complete tax wedges for 4 revenue ranges for single individuals with out dependents. That’s, we common the marginal complete tax wedges at 67 p.c, one hundred pc, 144 p.c, and 167 p.c of median revenue divided by the common of the imply complete median tax wedges for these identical median revenue ranges.[22]

In Europe, tax programs usually present a uniform attraction to people with excessive incomes, with sure exceptions. Solely in international locations equivalent to Austria, France, and Spain are there an outlined high-income threshold that’s considerably increased than the common full wage, the place the best marginal tax charges begin to apply. This locations high-income earners at a relative drawback in comparison with these within the middle-income bracket. In distinction, nations like Bulgaria and Estonia make the most of a flat tax system, the place the identical tax fee applies to all revenue ranges, simplifying the tax construction and probably providing a extra equitable burden throughout completely different revenue scales. In the meantime, international locations like Denmark and Eire, although not using a flat tax, characteristic a small distinction between the higher restrict for prime incomes and center incomes. This leads to a tax regime the place the best charges affect a broader portion of the inhabitants, thereby simplifying the system and probably benefiting these with increased incomes by creating a comparatively uniform tax affect throughout completely different revenue ranges.

Within the context of the 27 European Union international locations, the ratio between the marginal tax wedge and the common tax wedge is a helpful metric for evaluating the progressivity of the tax system. A median ratio of 1.24 signifies that, on common, the tax on the final euro earned is 24 p.c increased than the common tax on complete wages. This may be interpreted as an indication of progressivity within the tax system, the place increased incomes face increased marginal tax charges.

By way of fairness, a ratio nearer to 1 is usually preferable. Which means the distinction between what’s paid on common and what’s paid on the marginal revenue is smaller. When this ratio is near 1, it means that the tax therapy is extra uniform throughout completely different revenue ranges, with out disproportionately penalizing both low or excessive incomes. That is thought of extra equitable as a result of it doesn’t encourage tax evasion or aggressive tax planning and might contribute to a notion of better equity in society.

Though there are usually not many variations between international locations on this measure, the slight variations could replicate vital variations in how every nation constructions its fiscal therapy in the direction of increased incomes in comparison with center and low incomes. The decrease variability amongst international locations suggests a sure convergence in fiscal insurance policies throughout the European Union, which may point out smooth efforts to coordinate sure points of tax programs.

The Implications of Progressivity and Taxes on Excessive Incomes

Following up on Mengden’s publication, this part of the report presents a Excessive-Revenue Tax Competitiveness Index (HTCI). The goal of this train is to supply an artificial indicator exhibiting the numerous distortions that may be discovered within the tax programs of EU Member States concerning their therapy of higher-income residents. We take into consideration the distorting impact of stated insurance policies on points equivalent to financial efficiency and entrepreneurial exercise. This rating makes use of three key indicators: marginal tax charges, tax wedge, and revenue threshold at which the best marginal fee is utilized.

The controversy on fiscal fairness and financial effectivity in Europe underscores the necessity for extra refined analytical instruments that assist us assess and examine tax burdens throughout completely different jurisdictions. Fiscal insurance policies focusing on excessive incomes are significantly contentious, as they typically fail to steadiness the need to boost further income with the danger of discouraging investments and entrepreneurial actions that in the end profit everybody and in addition result in increased tax assortment on account of continued development. On this sense, the HTCI is proposed as a complete measurement instrument that helps describe how tax legal guidelines have an effect on these on the higher finish of the revenue scale.

The chosen indicators are usually not arbitrary, however very crucial parts of the dialogue on taxation and its results. The marginal tax fee immediately displays the utmost tax burden imposed on the best incomes, the tax wedge supplies a measure of the whole value of taxation on labor (particularly the proportion of the tax wedge for prime incomes relative to common incomes), and the revenue threshold for making use of the best marginal fee tells us how progressive the tax programs really are, considerably impacting the residency and funding choices of high-income people.

Furthermore, this index seeks to fill a niche within the literature and the coverage instruments obtainable, offering a comparative and empirical foundation that can be utilized by policymakers, researchers, and analysts to evaluate the effectiveness of present fiscal insurance policies and suggest essential changes. By incorporating these three indicators, the index provides a extra complete perspective on how excessive taxes can negatively affect competitiveness with out essentially attaining fiscal fairness targets.

This effort to quantify and analyze will not be solely of educational curiosity; it additionally has vital sensible implications. As European international locations search for methods to strengthen their economies whereas sustaining honest and equitable tax programs, instruments just like the Excessive-Revenue Tax Competitiveness Index can be essential in balancing the targets of financial effectivity with beliefs of redistribution.

To assemble a complete index that evaluates fiscal competitiveness when it comes to high-income earners throughout European international locations, a standardized and methodical method was employed. The methodology included a number of key steps. This course of aimed to quantify the distortive results of tax programs on financial efficiency and entrepreneurial exercise.[23]

The outcomes revealed that Bulgaria led the index with an ideal rating of 10 throughout all variables. This efficiency is carefully adopted by Romania and Hungary, with ultimate scores of roughly 8.59 and eight.23, respectively, highlighting their comparatively aggressive fiscal environments for high-income earners. Slovakia and Estonia additionally confirmed sturdy performances, rounding out the highest 5 with scores indicating lesser fiscal distortions in comparison with different European nations. These insights are instrumental for policymakers and financial analysts trying to perceive and probably reform the fiscal landscapes of their respective international locations.

Does Increased Taxation Imply Much less Inequality?

The argument that top tax charges are important for lowering financial inequality rests on the precept of progressive taxation, the place these with increased incomes are taxed at increased charges. This method goals to redistribute wealth extra evenly throughout society, theoretically resulting in a discount within the hole between the wealthy and the poor.

Advocates for increased tax charges imagine that this could result in a fairer society, the place the wealth generated by the financial system is shared extra broadly. This discourse additionally suggests how increased taxes on the wealthy can profit the remainder with extra income for investing in social providers equivalent to well being care, schooling, and infrastructure.

The logic behind progressive taxation relies on the power or capability to pay. It argues that these with increased incomes can afford to contribute a bigger proportion of their earnings with out considerably compromising their dwelling requirements.

Additionally, excessive tax charges are more and more seen as a instrument to forestall the extreme accumulation of wealth among the many elite, which is believed by some authors to result in financial distortions and a focus of energy. By capping the expansion of enormous fortunes, increased taxes are thought to forestall the rich from having fun with an excessive amount of affect over political and financial programs. That is typically justified as essential to guard democracy and keep a fair taking part in area on the financial entrance.

However as a redistributive instrument, the info reveal excessive taxes fall quick. Regardless of the theoretical benefits of excessive tax charges, empirical proof means that the precise affect on inequality discount may be very restricted.[24] Excessive tax charges don’t robotically equate to efficient wealth redistribution or decreased inequality. It is because the effectiveness of tax insurance policies in inequality discount largely will depend on how the tax income is utilized in addition to the general effectivity of the tax system, the place we issue compliance ranges or the executive capability to gather taxes.

Excessive tax charges can typically result in decreased financial incentives for funding and work, significantly when taxpayers really feel that the tax burden will not be equitably shared or that revenues are usually not correctly or successfully used. This may end up in decrease financial development, which in the end harms the tax base wanted for elevating the sources that finance redistributive insurance policies. Moreover, excessive tax charges immediately encourage tax avoidance and evasion methods, significantly among the many rich, who’ve the means to search out loopholes and can even transfer their wealth to lower-tax jurisdictions.

Moreover, the notion that merely elevating tax charges on the rich can result in better equality doesn’t take into consideration the complexity of tax programs in addition to the incentives stated insurance policies have on the financial conduct of the wealthiest taxpayers. As an illustration, if the tax construction will not be adequately designed to keep away from any sort of loopholes, nominal fee will increase won’t result in precise fee will increase paid by excessive earners.[25] The effectiveness of taxes in lowering inequality additionally critically will depend on the federal government’s capability to focus on spending towards applications that successfully promote equality.

Lastly, it’s important to contemplate the financial context through which tax insurance policies are applied. Excessive tax charges in a single territory won’t yield the identical leads to one other, on account of variations in financial circumstances, asymmetries within the distribution of revenue, various cultural attitudes towards taxation and public spending, and many others. This highlights the significance of tailoring tax insurance policies to particular nationwide and regional contexts, slightly than counting on excessive tax charges as a one-size-fits-all answer.

Because of this, it’s totally related to boost the query of whether or not a progressive system that taxes excessive incomes extra closely is the easiest way to right inequalities. If the response is destructive, it invalidates one of many predominant arguments for sustaining excessive marginal charges. In different phrases, it could be higher to keep up a easy and aggressive tax system with broad tax bases that don’t generate disincentives to work, save, or make investments.

That is exactly the query posed by Doerrenberg and Peichl in a pattern of OECD international locations, for which authors analyze financial outcomes for the interval between 1981 and 2005.[26] This analysis measures inequality-reducing efforts based mostly on the completely different results of its three predominant variables: authorities spending, social expenditure, and tax progressivity. But the query will not be so easy to reply, since inequality can even affect governments’ tax and spending insurance policies. That is the basic endogeneity downside. In any case, after taking all these circumstances under consideration, the outcomes of this paper point out that the results of adjustments in tax progressivity are small and insignificant. In different phrases, the oblique distortionary results dominate the direct results of taxing increased incomes. In brief, if the objective is to scale back inequality, governments ought to rely extra on spending than on taxation.[27]

Though the current report focuses on revenue taxes, wealth taxes additionally play a job in international locations’ efforts to mitigate inequality and levy taxes on the wealthiest people. But these levies additionally exhibit a restricted capability to successfully cut back financial inequalities.

Wealth taxation, together with the present Swiss mannequin in addition to completely different proposals which have being mentioned in the US (as an illustration, underneath Senator Elizabeth Warren’s tax plan) can create new sources of presidency income however in the end have a minimal affect on wealth inequality statistics. Regardless of substantial projected revenues—from $189.3 billion within the case of the Swiss tax to $303.4 billion underneath Warren’s tax proposal—the adjustments in wealth inequality, as measured by the Gini coefficient, are negligible. For instance, the utmost discount within the Gini coefficient was solely 0.0005 factors. This minimal affect means that, whereas wealth taxes can generate new authorities sources, their effectiveness as a instrument for lowering wealth inequality is tremendously restricted.

Whereas wealth taxes are a mechanism aimed toward addressing inequality, the outcomes mentioned by Wolff (2019) point out that their capability to take action successfully is proscribed, particularly when in comparison with different measures that do have a extra direct and vital affect on the distribution of wealth and incomes.[28] Due to this fact, policymakers ought to contemplate these findings when designing tax adjustments that explicitly goal inequality discount as a objective, as a result of the precise redistributive affect that’s typically related to wealth taxes will certainly not meet expectations.

The exploration into the implications of excessive taxation on inequality reveals that, whereas the intent behind progressive taxation is to foster a extra equitable society by redistributing wealth from the best earners to the remainder of the inhabitants, the effectiveness of such insurance policies in really lowering financial disparities stays very questionable. Though increased tax charges on the rich are designed to extend authorities income that may be invested in public items and providers, there are a number of challenges that in the end diminish the affect of those insurance policies, rendering them ineffective.

Amongst stated challenges, we discover that the executive prices and complexities in addition to the potential for elevated tax avoidance amongst excessive earners considerably undermine the efficacy of upper taxation mechanisms. People with increased incomes typically have entry to stylish monetary recommendation and thus discover nationwide and worldwide choices that allow them to reduce their tax liabilities, which may in flip result in much less effectiveness within the tax system in addition to a diminished tax base.

Moreover, excessive tax charges discourage funding and entrepreneurship, two components which are crucial for financial development and job creation. The migration of wealth and expertise in response to unfavorable tax circumstances can due to this fact end in a lower in potential income, thus limiting the capability of tax insurance policies to attain any supposed redistributive results.

Furthermore, the success of excessive taxation in curbing inequality additionally relies upon critically on the precise design of the tax system and the way revenues are utilized. Efficient redistribution requires not simply accumulating increased taxes, but in addition making certain that the raised funds are correctly and successfully directed towards authorities applications that do improve equality, which is actually not essentially the case in a lot of immediately’s bloated social spending applications. Lack of strategic allocation and inefficiencies in authorities spending clarify why even substantial revenues from excessive taxes don’t essentially result in vital adjustments in social outcomes.

Whereas progressive taxA progressive tax is one the place the common tax burden will increase with revenue. Excessive-income households pay a disproportionate share of the tax burden, whereas low- and middle-income taxpayers shoulder a comparatively small tax burden.
insurance policies are theoretically justified by the ideas of fairness and monetary duty, their sensible implementation have to be meticulously designed to keep away from financial distortions and to maximise their potential advantages. Making certain the effectivity of tax assortment, closing loopholes, and strategically directing tax revenues towards impactful social applications are important steps in leveraging excessive taxation to genuinely cut back inequality.

Moreover, it’s essential to contemplate the macroeconomic results of taxes on excessive incomes. The proof exhibits that their elasticity is larger than 1, that means that reductions in marginal charges can result in will increase in actual GDP and reduces in unemployment.[29] Thus, a well-rounded fiscal technique that mixes rigorous tax coverage design with a transparent give attention to financial stability and development is important for attaining equitable wealth distribution with out compromising financial vitality.

Fiscal insurance policies aimed toward elevating extra revenues from high-income people typically wrestle to achieve the objective of producing vital revenues, as a result of adaptive methods undertaken by these hit by stated will increase in taxation. These adjustments in financial conduct have destructive results on funding and entrepreneurship, which hurts the general efficiency of the financial system and in the end hinders total tax collections.

Very excessive taxes can undermine competitiveness and fail to attain a major affect on social indicators. Finally, if the target is to curb inequality, governments should focus extra on strategic spending that’s focused to fulfill this objective, slightly than relying totally on ineffective types of taxation.

Shifting Ahead: Key Insights for the Debate on Excessive Taxes

The recognition of imposing increased taxes on the rich appears to be rising. Initiatives throughout Europe, coming from advocacy teams and even some rich people themselves, replicate the push towards a cultural shift. These actions argue that progressive taxation is important for addressing wealth inequality and adequately funding social applications that profit all layers of society. This attitude is gaining traction, fueled by arguments that the present financial mannequin advantages a couple of whereas a good portion of the inhabitants sees little enchancment in its lifestyle.

This report highlights the numerous drawbacks of such measures and their very restricted potential for lowering financial disparities. Responses equivalent to tax optimization methods, tax evasion, or capital flight considerably undermine the potential income affect of upper taxes. These obstacles spotlight the advanced interaction between tax coverage and financial conduct, suggesting that merely elevating tax charges on the rich won’t yield the supposed social advantages.

Additionally, the potential destructive affect of excessive marginal tax charges on funding and innovation is notable. Excessive-income people and firms are sometimes the first drivers of high-risk, high-reward investments that stimulate financial development and innovation. Extreme taxation can deter these investments, resulting in slower financial development and diminished job creation. Due to this fact, it’s essential to strike a steadiness between encouraging financial dynamism and sustaining long-term development.

The range in marginal tax charges throughout the EU presents an much more sophisticated situation, with substantial variation impacting the selections of high-income people concerning the place to reside and make investments. This range complicates any efforts towards fiscal harmonization, which fail to take into consideration every nation’s distinctive financial panorama and the necessity for various approaches to taxation that include heterogeneous financial constructions.

The Excessive-Revenue Tax Competitiveness Index launched on this report provides a nuanced perspective on how tax insurance policies affect financial efficiency and the attractiveness of nations to high-income earners. Nations with much less distortive tax programs seem extra engaging for these taxpayers. This rating serves as a vital instrument for policymakers, serving to them perceive the broader impacts of tax coverage and guiding their determination plans towards tax programs which are extra conducive to financial development and well-being.

In keeping with the findings of the HTCI, Bulgaria, Romania, and Hungary rank as the highest performers, showcasing their aggressive tax environments that probably provide favorable circumstances for high-income earners. These international locations reveal fewer tax distortions, which can encourage financial exercise and entice funding. Conversely, international locations like Belgium, France, and Austria seem on the backside of the rating, reflecting increased ranges of tax distortion that deter financial dynamism and high-income residency on account of extra burdensome tax constructions.

The theoretical objective of tax harmonization throughout the European Union is to mitigate financial inequalities and stop the erosion of tax bases throughout completely different jurisdictions. Nonetheless, uniformly increased tax burdens are more likely to end result, stifling financial initiative and lowering total competitiveness. This highlights the advanced actuality of tax insurance policies throughout Europe, which is in the end the results of very various financial landscapes. Policymakers should rigorously navigate these challenges to craft tax programs that don’t sacrifice financial vitality.

The findings from this report recommend the need for a reevaluation of tax priorities and ongoing methods in relation to excessive earners. Efficient tax insurance policies should contemplate the broader implications for financial incentives and development. Policymakers are due to this fact inspired to design tax programs that strike a correct steadiness between social targets and the realities of a market financial system. In doing so, they’ll domesticate an setting that helps sturdy financial exercise that results in increased ranges of progress and well-being.

Methodology

The steps adopted for estimating the Excessive-Revenue Tax Competitiveness Index are described beneath:

• The preliminary step concerned standardizing every variable by computing z-scores. This statistical methodology measures the variety of commonplace deviations a knowledge level is from the imply of the dataset, normalizing the info throughout disparate scales and items. This normalization is essential because it permits for an unbiased comparability between completely different tax-related metrics equivalent to efficient marginal tax charges, the revenue thresholds at which high marginal charges apply, and the ratio of the marginal to common tax wedge.
• As soon as the z-scores have been calculated, they have been inverted. This inversion was essential as a result of, within the context of fiscal competitiveness, a decrease rating (or a extra destructive z-score) is preferable, indicating a much less distortive tax system. For the aim of our index, destructive z-scores have been thought of higher, thus they have been multiplied by -1 to align with the index’s scoring logic the place increased scores point out superior efficiency.
• Following the inversion, the scores have been adjusted to remove any destructive values. This adjustment concerned figuring out the bottom z-score, which was then negated and elevated by one. This optimistic shift ensured that each one scores have been non-negative, with the bottom rating set because the baseline at one. Subsequently, these scores have been scaled relative to the best-performing nation, to vary from 0 to 10 factors, additional refining the competitiveness measure and making certain its accessibility to broader audiences.
• The ultimate rating for every nation was computed as the easy common of the three scaled scores. This averaging methodology consolidates the person metrics right into a single, complete index worth that displays the general fiscal competitiveness in relation to excessive incomes. Moreover, a rating was derived from these ultimate scores, offering a transparent ordinal illustration of the place every nation stands compared to others within the dataset.

Appendix

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[1] Annette Alstadsæter, Sarah Godar, Panayiotis Nicolaides, and Gabriel Zucman, World Tax Evasion Report 2024, EU Tax Observatory, 2023, https://www.taxobservatory.eu//www-site/uploads/2023/10/global_tax_evasion_report_24.pdf.

[2] Gustav Fritzon and Jacob Lundberg, “Taxing Excessive Incomes: A Comparability of 41 Nations,” Timbro, Tax Basis, and Epicenter, 2019, https://taxfoundation.org/wp-content/uploads/2019/10/Taxing-Excessive-Revenue-A-Comparability-of-41-Nations-PDF.pdf.

[3] Isabel Saco, “Millonarios «orgullosos de pagar más» piden subir los impuestos a los ricos,” EuroEFE, Jan. 21, 2024, https://euroefe.euractiv.es/section/foro-economico-mundial/news/millonarios-orgullosos-de-pagar-mas-piden-subir-impuestos-a-los-ricos/.

[4] Annette Alstadsæter, Sarah Godar, Panayiotis Nicolaides, and Gabriel Zucman, World Tax Evasion Report 2024, EU Tax Observatory, 2023, https://www.taxobservatory.eu//www-site/uploads/2023/10/global_tax_evasion_report_24.pdf.

[5] Annette Alstadsæter, Sarah Godar, Panayiotis Nicolaides, and Gabriel Zucman, World Tax Evasion Report 2024, EU Tax Observatory, 2023, https://www.taxobservatory.eu//www-site/uploads/2023/10/global_tax_evasion_report_24.pdf.

[6] Santo Milasi and Robert J. Waldmann, “High Marginal Taxation and Financial Progress,” Utilized Economics 50:19 (2018): 2156-2170, https://doi.org/10.1080/00036846.2017.1392001.

[7] Ufuk Akcigit, Salomé Baslandze, and Stefanie Stantcheva, “Taxation and the Worldwide Mobility of Inventors,” American Financial Overview 106:10 (October 2016): 2930-2981, https://doi.org/10.1257/aer.20150237.

[8] Henrik J. Kleven, Camille Landais, and Emmanuel Saez, “Taxation and Worldwide Migration of Superstars: Proof from the European Soccer Market,” American Financial Overview 103:5 (August 2013): 1892-1924, https://doi.org/10.1257/aer.103.5.1892.

[9] Mathilde Muñoz, “Do European High Earners React to Labour Taxation By way of Migration?,” Paris College of Economics, Working Paper No. 35 (June 2021), https://shs.hal.science/halshs-03252899/document

[10] Henrik J. Kleven, Camille Landais, Emmanuel Saez, and Esben Schultz, “Migration and Wage Results of Taxing High Earners: Proof from the Foreigners’ Tax Scheme in Demark,” The Quarterly Journal of Economics 129:1 (February 2014): 333-378, https://doi.org/10.1093/qje/qjt033.

[11] Arun Advani, David Burgherr, and Andy Summers, “Taxation and Migration by the Tremendous-Wealthy,” IZA DP 16432 (September 2023), https://docs.iza.org/dp16432.pdf.

[12] David R. Agrawal and Dirk Foremny, “Relocation of the Wealthy: Migration in Response to High Tax Charge Modifications from Spanish Reforms,” SSRN (April 2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2796472.

[13] For an additional dialogue of this downside, see Oliver Hümbelin and Rudolf Farys, “Revenue Redistribution by means of Taxation: How Deductions undermine the Impact of Taxes,” Journal of Revenue Distribution 26:1 (2017): 1-35, https://doi.org/10.25071/1874-6322.40330.

[14] Eduardo B. Moliné, “Gasto Social, Redistribución y Desigualdad,” Papeles de Economía Española 147 (2016): 128-144, https://www.funcas.es/wp-content/uploads/Migracion/Articulos/FUNCAS_PEE/147art08.pdf.

[15] Gustav Fritzon and Jacob Lundberg, Taxing excessive incomes: A comparability of 41 international locations, Timbro, Tax Basis, and Epicenter, 2019, https://taxfoundation.org/wp-content/uploads/2019/10/Taxing-Excessive-Revenue-A-Comparability-of-41-Nations-PDF.pdf.

[16] Particularly, the next sources have been consulted and double-checked:

• PWC, The Worldwide Tax Summaries.
• European Fee, Taxes in Europe Database (v4).
• European Fee, Taxation Developments.
• OECD, Taxing Wages.

[17] Julio López, Carmen Marín, and Jorge Onrubia, “Observatorio sobre el reparto de los impuestos y las prestaciones entre los hogares españoles,” FEDEA, 2024, https://www.fedea.net/observatorio-sobre-el-reparto-de-los-impuestos-y-las-prestaciones-entre-los-hogares-espanoles/.

[18] For extra info on the steps adopted for a specific nation, you possibly can consult with Fritzon and Lundberg (2019) and/or request it from the authors of this report.

[19] The annual full-time equal (FTE) ratio is calculated as the standard weekly hours for full-time staff divided by the standard weekly hours for all staff.

[20] It must be famous that in international locations with a flat tax, the revenue stage to which the marginal tax fee is utilized is 0, besides within the case of Estonia, since there may be an exempt minimal of €6,000 that serves as a restrict for the needs of those calculations.

[21] Alex Mengden, Worldwide Tax Competitiveness Index 2023, Tax Basis, 2023. https://taxfoundation.org/wp-content/uploads/2023/10/TF-ITCI23-Book_16-10_FV.pdf.

[22] For Bulgaria, Croatia, Cyprus, Malta, and Romania, the steps adopted are completely different, because the OECD doesn’t present estimates for these international locations. In these circumstances, the extent of revenue tax utilized for a mean wage has been substituted within the estimates of the efficient marginal tax fee to acquire the common tax wedge. For the marginal tax wedge, the marginal revenue tax fee obtained within the earlier part is used.

[23] See the methodology part for a extra detailed description.

[24] Mercedes Serraller, “Madrid es la comunidad que más cut back la desigualdad con el IRPF,” VozPopuli, Feb. 18, 2022, https://www.vozpopuli.com/economia_y_finanzas/madrid-irpf-desigualdad.html.

[25] Arthur B. Laffer, Brian Domitrovic, and Jeanne C. Sinquefield, Taxes Have Penalties: An Revenue Tax Historical past of the US (New York Metropolis: Put up Hill Press, 2022).

[26] Philipp Doerrenberg and Andreas Peichl, “The affect of redistributive insurance policies on inequality in OECD international locations,” Utilized Economics 46:17 (March 2014): 2066-2086, https://doi.org/10.1080/00036846.2014.892202.

[27] For extra info, see the Instituto de Estudios Económicos evaluation which confirms that, for Spain, 86% of inequality is defined by the evolution of the labor market, obtainable at: https://www.ieemadrid.es/wp-content/uploads/IEE-Informe-Sept.-2021.-Empresa-igualdad-de-oportunidades-y-progreso-social-1.pdf. Additionally, for Spain, Bernardo de Quirós and Gómez analyze the effectivity of the general public sector and conclude that public spending might be 10 proportion factors of GDP decrease by lowering the waste of public sources: Lorenzo Bernaldo de Quirós and María Gómez, Un Estado caro, ineficaz e ineficiente (Madrid: Instituto de Estudios Económicos, 2022), 91-135. These two research verify that inequality is an issue of financial effectivity and never a lot of the necessity to improve distortionary taxes.

[28] Edward N. Wolff, “Wealth Taxation in the US,” Nationwide Bureau of Financial Analysis 26544 (December 2019), https://doi.org/10.3386/w26544.

[29] Karel Mertens and José Luis Montiel Olea, “Marginal Tax Charges and Revenue: New Time Sequence Proof,” The Quarterly Journal of Economics 133:4 (November 2018): 1803-1884, https://www.doi.org/10.1093/qje/qjy008.

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