This new publication is jointly undertaken by the OECD Development Centre and the OECD Centre for Tax Policy and Administration, the Inter-American Center of Tax Administrations (CIAT) and the Inter-American Development Bank (IDB). It provides details of taxes paid on wages in 20 economies in Latin America and the Caribbean. The information contained in the Report covers the personal income tax and social security contributions paid by employees, the social security contributions and payroll taxes paid by their employers and cash benefits received by families. The objective of the Report is to illustrate how personal income taxes, social security contributions and payroll taxes are calculated and to examine how these levies and cash family benefits impact on net household incomes. The results also allow quantitative cross-country comparisons of labour cost levels and of the overall tax and benefit position of single persons and families.

The estimated amounts of tax and social security contributions (SSCs) paid on labour income by the average worker in Latin American and Caribbean (LAC) countries in 2013 was 21.7%. These payments are measured by the tax wedge which takes the total taxes and compulsory SSCs paid by employees and employers, less family benefits received as a proportion of the total labour costs for employers. This measure provides an analysis of the combined impact of these levies on net household income.

This chapter presents the main results of the analysis of the taxation of labour income for twenty economies in Latin America and the Caribbean in 2013. Most emphasis is given to the tax wedge – a measure of the difference between labour costs to the employer and the corresponding net take-home pay of the employee – which is calculated by expressing the sum of personal income tax, employee plus employer contributions together with any payroll tax minus benefits as a percentage of labour costs. The calculations also focus on the net personal average tax rate. This is the term used when the percentage income tax and employee social security contributions net of cash benefits are expressed as a percentage of gross wage earnings. In this Report, the methodology used to estimate the tax wedges is based on the compulsory payments methodology;The deductions from labour income (referred to in this Report as taxes) are defined as personal income tax, employee and employer social security contributions (paid either to general government or privately managed funds) and payroll taxes less cash transfers.Labour costs are defined as the sum of gross wage earnings, employers social security contributions (paid either to general government or privately managed funds) and payroll taxes.A more detailed description of the methodology is set out in the Annex. The key results focus on the single worker with no children on average earnings and include a comparison with the single married couple earner with two children. The analysis includes a review of how tax wedges vary across the income distribution.

The authors of the special feature are Veronica Alaimo, Juan Carlos Benítez, Angel Melguizo and René Orozco. The authors thank Maurice Nettley, Bert Brys and Dominique Paturot for their contributions to this special feature and Melany Gualavisi and Maria Laura Oliveri for providing the data that enabled the analysis. The opinions expressed and arguments employed herein are the views of the authors and do not necessarily represent the official views of the Inter-American Development Bank (IDB), the Inter-American Centre of Tax Administrations (CIAT), the Organisation for Economic Co-operation and Development (OECD) and the OECD Development Centre or the governments of its member countries.