Who has the highest tax burden?

Number one is France, Belgium and Sweden are right behind. I am shocked to see China come in fourth, and to see the U.S. (New York State at least) beat out Canada.

The relevant metrics do not measure tax burden fully. Instead the rankings measure a weighted average of various marginal rates; average tax rates do not seem to enter into the calculation. Nor do they seem to consider how much of the tax is actually paid, or what you get for your taxes.

Since 2000, the tax burden, as measured in this fashion, has dropped in 22 countries, risen in 13, and held steady in 15.

The least taxed country is now United Arab Emirates, pushing long-time winner Hong Kong into second place. Next in line for low marginal rates are Singapore, India, South Africa, and Indonesia, an odd mix of countries. Then comes Ireland.

Here are extensive links to the data.

Note that economic theory says that marginal rates should be of primary importance. But often in the data it is the average tax rate that matters. Why is this? Could it be that liquidity effects are paramount? High average rates then suck away cash and end up affecting decisions at the margin. Or consider another channel. The tax system is very complex and full of loopholes and deductions. The average rate might in fact be the best measure of the true marginal rate we have.

Postscript: I know this is a market-oriented economics blog, but hey, I am also a contrarian at heart. I cannot help asking: which countries would you rather live in? Visit?

One view is “France is great, but it would be even better with lower taxes.” Another is: “France is great, and for reasons which bring both its wonders and its high taxes.” I am perpetually torn between these two views, often co-blogger Alex tries to push me more toward the former.


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