The ways in which governments raise money through taxation continue to vary widely across the OECD, with Denmark collecting almost 60% of its revenues from personal and corporate taxes and France less than 25%, according to data in the latest edition of the OECD’s annual Revenue Statistics publication.
Over the past decade, the average share of corporate income tax in the tax mix has risen by more than one percentage point to reach the 9 per cent level of the 1960s.
The upwards trend goes some way to counter governments' concern about the potential erosion of their corporate tax base as a result of tax avoidance and tax competition. But there are large variations between countries, with Germany raising just 4 per cent of its tax revenues from corporation tax while Luxembourg raises 19 per cent.
The contribution of personal income tax has shrunk from 30 per cent of total taxes in the early 1980s to 25 per cent today. The resistance of voters to further tax increases and concern about the potential economic damage caused by high tax rates were possible explanations, the OECD said.
In North America, Mexico collects more than half of its tax revenue from taxes on the sales of goods and services while the United States raises less than a fifth of its revenue from this source (see Figure 1 and Table1). At regional and local level, different patterns are also visible. While most countries use a mix of state and local taxes to finance sub-national government, Ireland and the United Kingdom rely exclusively on local property taxes and Sweden exclusively on local income tax (see Figure 2).
Such differences reflect national choices with regard to taxation which in turn are determined by economic and social priorities. Revenue Statistics presents internationally comparable data on the tax revenues of OECD countries for all levels of government, enabling policy makers to compare a range of possible alternative models.
In 2004, the OECD publication reveals, Sweden once again had the highest tax-to-GDP ratio among OECD countries, at 50.7% against 50.6% in 2003. Denmark came next at 49.6% (48.3%), followed by Belgium at 45.6% (45.4%). At the other end of the scale, Mexico had the lowest tax-to-GDP ratio, at 18.5%, against 19.0% in 2003. Korea had the second lowest, at 24.6% (25.3%), and the United States had the third, at 25.4% (25.6%). Ireland's ratio is 30.2% compared with 29.1% in 1975 (See Table 2).
The ratio of total tax revenues to gross domestic product at market prices is a widely used measure of the extent of state involvement in national economies. Countries with high tax-to-GDP ratios tend to pay more from the public purse for services that citizens would have to pay for themselves - or do without - in lower-taxed countries. However, comparisons are not always easy to make: for example, many countries with high tax-to-GDP ratios provide family benefits as cash payments rather than as tax reductions, increasing the apparent tax burden as measured by the tax-to-GDP ratio.
Taking the 30-nation OECD area as a whole, the tax-to-GDP ratio calculated on an unweighted average basis fell marginally in 2003 – the latest year for which complete figures are available -- to 36.3%, from 36.4% in 2002 and from a peak of 37.1% in 2000. In 1975, the average tax-to-GDP ratio was 30.3%. The Netherlands showed the biggest percentage-point reduction in the overall share of taxation in its economy, with the tax-to-GDP ratio falling two percentage points to 39.3% of GDP in 2004 from 41.3% in 1975. In Spain, by contrast, the tax-to-GDP ratio jumped by almost 17 percentage points from 18.2% in 1975 to 35.1% in 2004. (See Figure 3).
Recent changes in tax-to-GDP ratios in many countries have reflected the combined impact of changes in economic growth and lower rates of taxation on personal and corporate income. The OECD average corporate tax rate fell from 33.6% in 2000 to 29.8% in 2004, while the average top personal income tax rates fell from 47.1% to 44.0%. These resulted in marked falls in revenues between 2000 and 2002, when economic growth was sluggish, but a revival of economies in 2003 led to a recovery in revenues, thanks to the positive impact of growth on incomes and profits, and hence in the overall tax base.
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