Relationship Between the Tax Burden Structure and Citizens’ Welfare in OECD Countries

Abstract

This research aims to examine the correlation between the tax burden structure and citizens’ welfare in OECD countries in 2020 and 2021. The hypothesis tested suggests an interconnection between the tax burden structure and citizen welfare, particularly a direct relationship between the income tax share and welfare, and an inverse relationship between the share of indirect taxes and welfare. The study employs correlation-regression, cluster, and structural analysis methods, along with data from OECD.Stat and the World Bank. The calculations were performed by using the “Data Analysis” package in MS Excel for the years 2000, 2018–2019, and 2021. The resulting dataset, comprising 1,540 indicators of welfare and tax burden structure across 38 OECD countries, confirmed a significant connection between the two. The income tax share exhibited the most pronounced unidirectional relationship with welfare, while the share of indirect taxes showed a negative correlation. Conversely, the share of the corporate income tax, property taxes, and social security contributions displayed non-significant correlations with welfare levels. To further categorize OECD countries, the k-means method and the DATAtab web tool were employed based on the parameters of the relationship between welfare and the tax burden structure. In high-income OECD countries, the income tax share averages 37.6%, with indirect taxes comprising 24.1% while in lower-income countries the share of the income tax is 6–20% (average 14.8%), with indirect taxes comprising 35–53% (average 39.7%) of the tax burden. To foster the growth of citizens’ welfare in Russia, it is advisable to increase the share of the income tax by enhancing the progressivity of its scale for the super-rich while maintaining the share of indirect taxes at the pre-crisis average level (≈25%).