Due to the financial crisis that has occurred in the past 10 years, many countries have reduced their taxes in order to stimulate economic growth. However, since 2010 concerns about the government debt rising, the government has reversed its effort on reducing taxes in order to alleviate its debt. According to the Organization for Economic Cooperation and Development, 34 countries released their annual taxing wages report. It was to the surprise of many that the average tax rates, which fell from 2007 through 2010, have since bounce back to almost equating 2007 levels. In France for example, the Organization for Economic Cooperation and Development said, “the payroll taxes paid by employers were cut to 28.7% of total labor costs in 2013, from 30.6 percent in 2010. At the same time, income taxes rates and employees payroll taxes were increased.”
http://www.nytimes.com/2014/04/12/business/economy/total-taxes-on-wages-are-rising.html?ref=economy
I thought the comment in the article was interesting concerning "fiscal devaluation", where a country’s exports can be made more competitive by reducing labor costs, which can be done by reducing the employer’s share of payroll taxes. I'm not sure if this would have a positive impact, because the effect would be similar to that of a currency devaluation, something that cannot happen within the euro zone.
ReplyDeleteIn the long run I believe that an increase in income taxed won't have a big effect towards the economy. As taxation on income increase, national savings will slowly increase as well. This will allow the government to pay off their debts and eventually taxation will decrease. In the short run, the effects of employee income tax increasing will cause people's disposable income to decrease which will reduce consumption, as a result economic growth rate will slowly decrease.
ReplyDelete