OECD Taxation Working Papers

ISSN :: 2223-5558 (online)
DOI :: 10.1787/22235558

Hide / Show Abstract

Working papers from the Centre for Tax Policy and Administration of the OECD that cover the full range of the Centre’s work on taxation with the main focus on tax policy related issues.

Modelling the Tax Burden on Labour Income in Brazil, China, India, Indonesia and South Africa

PDF
READ

Authors:

Luca Gandullia¹, Nicola Iacobone¹, Alastair Thomas²

Author Affiliations

1: University of Genoa, Italy

2: OECD, France

Publication Date

12 Dec 2012

Bibliographic information

No.:: 14

Pages

DOI

10.1787/5k8x9b1sw437-en

Hide / Show Abstract

This paper examines the taxation of labour income in five key emerging economies: Brazil, China, India, Indonesia and South Africa (the "BIICS" countries). The paper highlights the key features of the taxation of labour income in these countries, and then uses this information to model the tax burdens on labour income in each country following the OECD's Taxing Wages methodology. Average and marginal tax wedges in Brazil and China (Shanghai) are found to be similar in size in 2010 to those of many OECD countries. In contrast, India, Indonesia and South Africa (as well as rural China) impose very low average and marginal tax wedges compared to the vast majority of OECD countries. These relatively low tax wedge results are not altogether surprising given that these countries also currently have lower tax-to-GDP ratios than the OECD average. However, the results suggest that, in the long-term, reforms will be necessary in most of the BIICS countries if the labour income base is to significantly contribute to funding the substantial increases in public expenditure, particularly on infrastructure and social insurance, that will inevitably come as these countries continue to grow.

Keywords:: social security contributions, personal income tax, labour income, tax wedge

JEL Classification:

H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies
H55: Public Economics / National Government Expenditures and Related Policies / Social Security and Public Pensions