Marginal Effective Tax Rates - EUROMOD estimates

The table shows Marginal Effective Tax Rates (METRs), which measure the percentage of marginal increase in earnings that is taxed away due to social insurance contributions, taxes and loss of benefit entitlement. Results are produced using the EUROMOD MTR Add-on, which calculates METRs by simulating the impact of a 3% increase in gross individual earnings and considering the impact on household disposable income. Simulations are run for individuals of working age (18-64)  currently in work (with positive earnings in the data). These estimates are average values calculated for the working individuals in the EUROMOD input data, and hence are different from similar indicators calculated based on hypothetical households

We exclude from our calculations the top percentile of total METR values if they exceed 150% and the lowest percentile of total METR values if they are negative. These exclusions are made in order for average METR to be less sensitive to “outliers”, although such values are in principle plausible. 

METRs provide a measure of labour market incentives at the intensive margin: the highest (lowest) the METR, the lowest (highest) the incentives to work more hours.

Total METR (on disposable income) is also decomposed by income components: benefits (including pensions), direct taxes, and SIC paid by the individual. 

Results are shown in percentage.

For more information on the economic and socio-demographic concepts used, see the EUROMOD Glossary and the list of breakdown variables.

References:

Jara and Tumino. (2013). Tax-benefit systems, income distribution and work incentives in the European Union. International Journal of Management and Applied Science, 1(6), pp. 27-62

JRC-EUROMOD team (2024), EUROMOD Marginal Tax Rate (MTR) Add-on - technical note, European Commission, Seville, JRC136811 (link)