Reliance on Social Insurance Tax Revenue in Europe

May 9, 2019

A recent report on tax revenue sources shows that social insurance taxes are an important revenue source for European governments. In 2017 (the most recent data available), social insurance taxes were the second largest tax revenue source in Europe (27 countries covered), at an average of 29.7 percent of total tax revenue. Only consumption taxes were on average a larger source of tax revenue, at 32.8 percent.

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In 2017, Slovakia relied the most on social insurance taxes, at 44.1 percent of total tax revenue. The Czech Republic and Lithuania were next, relying on social insurance taxes for 43 percent and 41.4 percent of their total tax revenue, respectively. In contrast, individual income taxes represented a low share of total tax revenue in all three of these countries, ranging between 10.3 percent and 13 percent, compared to a European average of 22.9 percent.

Denmark relied the least on social insurance taxes, at 0.1 percent of total tax revenue. This is partially because Denmark does not levy a dedicated social insurance tax to fund its social programs, but instead uses a share of its individual income tax revenue for these programs. Iceland and Ireland had the second and third lowest reliance on social insurance taxes, at 9.3 percent and 17 percent, respectively.

Social insurance taxes, as opposed to individual income taxes, are usually levied on wages at a flat rate to fund specific social programs, such as unemployment insurance, health insurance, and old age insurance. While social insurance taxes and individual income taxes can be seen as two types of taxes, the extent to which countries rely on each tends to correlate negatively. In other words, countries relying less on social insurance tax revenue typically rely more on individual income tax revenue, and vice versa.

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