Income Taxation: A Cross-Country Comparison


This paper studies income taxes across the world using detailed micro-data from the Luxembourg Income Study. We first show that income tax systems worldwide are approximated remarkably well by a two-parameter effective tax function. Then, we estimate country-year specific tax functions to compare the level of average taxation and income tax progressivity across countries and over time. We also examine the effects of economic development and family structure on income tax progressivity. We find that a higher level of taxation is associated with a higher degree of progressivity. We also find that progressivity has undergone significant changes over the last forty years. We show a positive association between economic development: countries with a higher median income also display higher income tax progressivity. We also demonstrate that income tax progressivity varies significantly across family structures: married couples with children face the highest degree of progressivity worldwide, while childless singles the lowest.

Working Paper