Post-tax incomes increased in almost three-quarters of OECD countries in 2024, as real wages recovered and labour taxes increased slightly, according to a new OECD report.
With inflation rates falling across the OECD, Taxing Wages 2025 reveals that the post-tax income of a single worker earning the average wage increased in real terms in 28 of the 38 OECD countries in 2024, having declined in 21 countries in 2023 and 33 countries in 2022.
The new OECD analysis provides cross-country comparison of the labour tax wedge, which measures total taxes on labour paid by both employees and employers, minus cash benefits received by working families, as a percentage of labour costs. The report looks at eight stylised household types, which vary by income level and household composition.
Effective tax rates for seven of these eight household types rose slightly on average across OECD countries in 2024; for each of the seven, the average tax wedge has now risen to its level in 2019, prior to the COVID-19 pandemic. In 2020, effective tax rates fell sharply due to falls in average wages and temporary measures introduced by OECD countries to support households during the pandemic.
Higher social security contributions were the most common factor behind the increases in the tax wedge in 2024. The increases were generally smaller in 2024 than in the previous two years, when high inflation had caused effective personal income tax rates to rise in the absence of automatic indexation of tax systems in many OECD countries.
In 2024, the tax wedge for a single worker earning the average wage increased in 20 countries and edged up by 0.05 percentage points (p.p.) on average across the OECD, reaching 34.9%. The tax wedge ranged from 52.6% in Belgium to 0% in Colombia, where workers earning the average wage do not pay income tax and make social security payments that are not classified as taxes.
For the second consecutive year, the only household type for which effective tax rates fell in 2024 was a single parent earning 67% of the average wage. For this household type, the tax wedge declined in 24 countries and fell by 0.38 p.p. on average across the OECD to 15.8% in 2024. The largest declines occurred in Portugal and Poland (of 7.2 p.p. and 4.1 p.p., respectively) and were partly due to increases in cash benefits.
This year's edition of Taxing Wages contains a special feature that analyses the impact of tax credits and allowances on personal income tax rates in OECD countries. The analysis shows that credits and allowances significantly reduce tax rates across household types, especially for households with children. Credits and allowances also make personal income tax systems of OECD countries more progressive, with credits having a greater impact in this regard than allowances.
