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Economy and Finance

What is the tax and benefits indicators database?

Labour taxes, social contributions and benefits have an important impact on incentives to work and to hire. The tax and benefits indicators database is used to examine the likely impacts of tax policies on economic growth and employment.

Tax and benefits

Labour taxes, social contributions and benefits have an important impact on incentives to work and to hire.

By increasing the gap between the gross and the net wage and increasing the cost of labour, personal income taxes and social security contributions reduce incentives for people to take up work or to work longer hours, and for firms to hire new staff or grant salary increases. At the same time, an increase in earnings can lead to a reduction in benefits, offsetting the gains from taking up work.

Database

In February 2025, EU Member States agreed to use indicators based on the EUROMOD model in their policy monitoring frameworks, replacing the use of indicators based on the OECD TaxBen model. This transition applies from the 2025-2026 European Semester cycle. Thus the database includes OECD data for the years 2001-2024, and EUROMOD data for the period starting in 2024. EUROMOD data are based on the Hypothetical Household Tool, an extension of the EUROMOD model, and are calculated by the Joint Research Centre of the European Commission. While the underlying methodology is very similar, differences in the assumptions can lead to different results between both models.  

Tax and benefits database

Contact : EC-TAX-BENEFITatec [dot] europa [dot] eu (EC-TAX-BENEFIT[at]ec[dot]europa[dot]eu)

Indicators and methodology

This database contains a variety of indicators that measure relevant elements of these effects:

  • Marginal effective tax rates show what part of an increase in earnings when taking up work, or working more hours, is ‘taxed away’ by personal income taxes, social security contributions and any withdrawal of earnings-related social transfers.
  • The net replacement rate provides a measure of the generosity of the unemployment benefit system, taking into account the effects of other benefits, taxes and social security contributions.
  • The net increase in disposable income rate shows the income effects of moving from unemployment or inactivity to employment.
  • The tax wedge shows the proportional difference between the costs of a worker to their employer and the employee’s net earnings.
  • The database also provides information about the income tax/social security contributions-free earnings threshold and about the earnings level at which social benefits are withdrawn entirely.

The database covers all EU Member States with annual data going back to the year 2001.

Learn more about the indicators and the methodology used.