Special feature: Taxation and skills

This special feature examines how the labour income tax system can provide incentives or disincentives for workers to invest in human capital and skills. It provides effective tax rates on skills investments incorporating personal income taxes and employees’ social security contributions for the sample case of a 32-year-old single worker undertaking a short course of training. Social security contributions increase the tax burden on skills compared to a scenario where only personal income taxes are considered. The tax burden on skills is also progressive those on higher incomes and those who earn a higher return on skills investments are taxed at higher effective rates. Analysing the impact of labour taxation on skills investments should be borne in mind by policymakers when considering the taxation of labour.