Labour Taxation and Inclusive Growth

Summary:

The importance of tackling income inequality has been stressed in the context of the European Pillar of Social Rights. In this context, the 2018 Annual Growth Survey underlined the relevance of labour taxes to pursue inclusive growth, as it has an important impact on economic growth but also on income inequality. Not all labour tax reforms, however, can simultaneously foster growth and reduce income inequality: some reforms imply a trade-off while others offer a win-win situation. This paper focusses on those labour tax reforms which offer complementarities between growth and income inequality objectives. It expands on work carried out for the Eurogroup (tax wedge, financing labour tax cuts) and the Economic Policy Committee (secondary earners, design of labour taxation) in supporting the EU political imperative of addressing income inequalities while fostering growth.

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