OECD paper comparing the taxation of labor vs. capital income

Víctor de Castro Esteller

PLANARTUS

www.planartus.com

The latest OECD taxation working paper shows lower effective tax rates (ETR) for dividends and capital gains than for labor income in Personal Income Tax. It also happens in many countries when considering the addition of PIT and CIT. The paper illustrates the differences between countries and the usual progressivity of tax scales.

The scenarios modelled include four different income levels with combinations of wage, dividends and capital gains income, earned by a single working-age taxpayer with no dependents. Checking several charts, the reader can spot the differences for ETRs between countries.

Lower taxes on capital income can reduce the efficiency of tax systems. Considering that capital income is concentrated at the top of the distribution, it means that high earners benefit disproportionately from preferential capital income tax treatment.

XLNC TFG Newsflash| October 2023

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