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Taxing Wages in Latin America and the Caribbean 2016

image of Taxing Wages in Latin America and the Caribbean 2016

This new high profile report provides details of taxes paid on wages in twenty economies in Latin America and the Caribbean.  It covers: personal income taxes and social security contributions paid by employees; social security contributions and payroll taxes paid by employers; cash benefits received by in-work families.

It illustrates how these taxes and benefits are calculated in each member country and examines how they impact on household incomes. The results also enable quantitative cross-country comparisons of labour cost levels and the overall tax and benefit position of single persons and families on different levels of earnings.

The publication shows the amounts of taxes and social security contributions levied and cash benefits received for eight different family types which vary by a combination of household composition and household type.  It also presents the resulting average and marginal tax rates (i.e. the tax burden). Average tax rates show that part of gross wage earnings or total labour costs which is taken in tax and social security contributions (both before and after cash benefits). Marginal tax rates show the part of a small increase of gross earnings or total labour costs that is paid in these levies.

The data presented can be used in academic research and to analyse tax, social and economic policies in Latin America and the Caribbean.

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Overview

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.

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