Indeed, the OECD took such an approach when examining marginal effective tax rates
for various example family types in a range of countries in 2001 (7).
Figure 3 compares the behavior of the marginal effective tax rate
with that of the average tax rate, computed as taxes paid as a percent of pre-tax earnings.
Capital taxation policy involves a number of difficult issues: income base definition, overall tax burden, investment incentive policy, and nonneutrality of marginal effective tax rates
. The general findings of the study are$that effective corporate tax rates are well below statutory rates in all nine countries.
Net income and effective tax rates when taking childcare costs into account Families with two children 1 and 4 years old, all adults have earnings potential equal to the average production worker, based on 2004 rules, per cent Canada (Quebec) Couples with one adult working full time, the other working either one third, two thirds or full time Gross wage earnings of the household 100 100 100 (% of APW) (2) +33 +67 +100 Net income after taxes, benefits and childcare costs (% of APW) 98 117 135 Marginal effective tax rates
on additional earnings (3) When entering the labour market 65 54 51 When increasing hours of work from the previous level shown in the table ...
This limits the options for reducing marginal effective tax rates
, although the introduction in 1999 of the Working Tax Credit that tapers off less steeply than the Family Credit it replaced has removed the worst peaks of marginal effective tax rates
(HM Treasury, 2005; Dilnot and McCrae, 2000).
Recent years' tax/benefit reforms have helped lower-income families, but they have also inadvertently produced higher marginal effective tax rates
as refundable tax credits or cash benefits are withdrawn with higher earned income.
The incentive to work longer hours is weakened by relatively high marginal effective tax rates
, with large effects on workers with relatively high labour supply elasticity, such as second earners (Table 4.2).
This may require reducing marginal effective tax rates
and providing greater access to child-care support.
Lone parent family with 2 children aged 1 and 4 Vaud Gross wage earnings (in % of APW earnings) (1) 33 67 100 Marginal effective tax rates
on additional earnings (4) Without taking childcare costs into account ..
Looking beyond the completion of the current four-year programme, priorities for tax reform should concentrate on further reducing the highest marginal effective tax rates
on labour, and it should be possible to design a revenue-neutral package of measures to achieve this.
The credits mostly benefit individuals (and families) in the lower five income deciles, whose actual average tax rates are substantially below the rates that would have applied in the absence of such credits (Figure 33)  The abatement of the credits (as well as welfare benefits such as the domestic purpose benefit and the accommodation supplement), while helping to contain revenue losses, also implies potentially very high marginal effective tax rates
(METRs) for persons in the abatement ranges.
The system imposes excessive marginal effective tax rates
that lack fairness.