Taxing work

Abstract. This article examines the development of tax regimes across OECD countries in the latter part of the twentieth century. It gives particular emphasis to taxes on labour income. Taxes on labour income represent a major drain on private households. They have become the mainstay of many of these countries’ public sector finances. Taxes on labour income rather than on capital appear to be the preferred instrument of finance for those economic and political interests that advocate and support a strong (and thereby expensive) welfare state. There is little ‘free lunch’ to be had in these welfare states; if anything, ‘socialism in one class’ seems to be the rule. Coordinated market economies tend to impose higher tax rates on labour because they have higher levels of wage coordination, their governments are more likely to be oriented to the left and their executives are relatively weak in relation to their legislatures.