Simplification Opportunities in Some Western European Personal Income Tax System

This paper builds on earlier analyses of international examples to further explore the limitations of simplification opportunities in personal income tax systems. To this purpose, a program has been developed to determine parameters of a simple, theoretical tax system can be closely matched to the tax burden curves of the countries under study. The findings from previous studies suggest that replacing complex systems with simpler tax parameters is a real option. This can be effectively accomplished using the paper’s chosen theoretical tax system, provided that there are no significant breakpoints in the tax burden curve being analysed. This study specifically focuses on these breakpoints and investigates personal income tax systems in Western Europe that have not been previously examined. The analysis identifies that a breakpoint in the tax burden curves often occurs due to substantial differences between two tax rates, the withdrawal of certain tax reliefs at a certain income level, or the capping of the elements that can be considered as allowances. However, even with these elements included in the analysed system, a simple theoretical tax system can still be effective if these elements are applied in a manner that does not significantly disrupt the tax burden curve.