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than the taxation of income from self-employment and than the taxation of income from capital. The
taxation of consumption is lower than the taxation of primary income.

Figure 2 – Implicit tax rates

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004

Labour - employed Income from self employment Capital Consumption Social transfers

Source: Update of VALENDUC (2004)

Table 1 - Implicit tax rates – 2000-04

2000 2001 2002 2003 2004

Labour 42.8% 42.7% 42.6% 42.6% 42.6%

Income from self-employment 29.7% 30.4% 31.2% 32.1% 33.5%

Capital 31.9% 33.1% 33.2% 32.6% 34.3%

Consumption 18.8% 17.5% 18.0% 17.9% 18.9%

Social transfers 8.3% 8.4% 8.2% 8.1% 8.0%

Source: Update of VALENDUC (2004)

The hierarchy of ITR is roughly stable over time: tax reforms only result in small changes but do not
change the fundamental message that arises from the ITR and their implications for the quality of tax
revenue: taxation relies more on primary income than on consumption and among various types of
incomes, labour is more heavily taxed than capital.

• A slight increase took place in the early nineties. Two important changes that were made in the tax
  system increased the PIT component of labour taxation. The additional crisis surcharge (3% of
  PIT) was introduced and the indexation of PIT was partially suspended. The tax policy stance
  changed in 1999: the additional crisis surcharge was phased out, automatic, full indexation of PIT
  was reintroduced and a tax cut in personal income tax, which amounts to roughly 4 billion € (1.3