Monday, July 10, 2006

Tax Rates Around the World

In a previous post, I suggested that the women in Europe may work less in the market and more at home because of higher tax rates. After reading some of the comments, I thought that blog readers might like to see some data on tax rates.

Here are the marginal tax rates as estimated by Ed Prescott for the 1990s:

Germany .59
France .59
Italy .64
Canada .52
United Kingdom .44
Japan .37
United States .40

These figures include both income taxes and consumption taxes, such as the VAT. Both types of tax distort the consumption-leisure tradeoff (and the tradeoff between market work and home work).

If a person earns a dollar in the marketplace, she gets to consume 60 cents of goods and services in the United States, but only 41 cents in Germany and France, and 36 cents in Italy. These are large differences in incentives to work.