How High Inflation Raised Payroll Tax Burdens in Greece and OECD Countries

By Prokopis Hadjinikolou

Effective tax rates on labor income rose, due to non-indexation of the tax scale, across the OECD in 2023 as inflation remained above historical levels. In Greece the burdens for families with children continue to be well above the average of the OECD countries and amount to 37.5% against 29.5%. But the worker without children pays high taxes and contributions. Specifically, the charges amount to 38.4%, against 34.8% which is the OECD average.

For the unmarried worker earning the median wage, the OECD average tax wedge (tax and contribution burden) in 2023 was 34.8%, up 0.13 percentage points from 2022. This was the second year in a row in which the tax wedge increased, after two years of decline during the COVID-19 pandemic in 2020 and 2021. In Greece for the single worker the burden was at 38.4%, an increase of 0.44 percentage points.

According to OECD data the tax wedge increased in 23 of the 38 OECD countries between 2022 and 2023, decreased in 13 and remained the same in two.

The increase was more than one percentage point in Australia (2.14 percentage points), due to higher nominal wages and the removal of tax relief, and Luxembourg (1.39 percentage points), also due to higher nominal wages.

Reductions in the tax wedge for the single worker earning the median wage were less than one percentage point, ranging from -0.01 percentage points in Canada to -0.98 percentage points in Mexico.

The average OECD tax bracket for the couple with two children (one earning 100% of the median wage, the other earning 67% of that) rose by 0.06 percentage points between 2022 and 2023 to 29.5%. For this type of household, the tax wedge increased in 21 countries and decreased in 17. In Greece, which is in seventh place in this category, the burdens stood at 37.5%, up by 0.59 percentage points.

The average OECD tax bracket for the one-earner couple with two children rose by 0.08 percentage points between 2022 and 2023 to 25.7%. The difference between the tax wedge for this type of household and that of the unmarried worker earning the median wage rose by 0.04 percentage points to 9.1 percentage points between 2022 and 2023. In Greece, charges increased by 0.73 percentage points and formed at 37.1%

The only decrease in the average tax wedge between 2022 and 2023 was seen for the single-parent family of two children earning 67% of the median wage. The tax wedge for this household type decreased by 0.31 percentage points to 16.5% in 2023, showing an increase in 21 countries and a decrease in 17. The largest decrease in the tax wedge for this household type, by -13.1 percentage points, occurred in the Slovak Republic and was due to the temporary increase in the child tax credit and the increase in child cash transfers. In 2022, the tax wedge for this household type increased by 1.27 percentage points, the largest increase seen for any household type that year.