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The revenue forgone only gives a rough indication of the economic cost, that should predominate in a
assessment of the quality of public finance. The assessment of the effect of tax incentives should rely on
their effectiveness (input or output additionality).

3. An application to the Belgian tax system

Belgian has a high tax/GDP ratio. It ranks just after Denmark and Sweden in the OECD ranking. This
means that the assessment of the quality is particularly relevant. We will consider most of he indicators
suggested in Section 2, starting with the tax mix. We next turn to tax burden indicators and to the trade-
off between efficiency and equity in personal income taxation. The final section gives some figures on
the revenue forgone from tax expenditures.

3.1. The tax mix

Figure 1 gives the structure of tax revenue for the 1995-2004 period. The tax mix is roughly stable over
time, with the higher component being the taxation of labour.

Figure 1 - The tax mix: 1995-2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

% total tax revenue

Social transfersr

Consumption

Capital

Income from self

employment

Labour - employed

Source: Belgostat – Tax statistics, Ministry of Finance, own calculations

Taxation of wages amounts to one half of the whole amount of tax revenue and taxation of labour and
capital amounts to 70%. On the opposite, the share of consumption is low. This clearly indicates that
taxation relies more on primary income than on consumption.

3.2. Tax burden indicators

3.2.1. Implicit tax rates

We could presume from the picture that arises from the tax mix that the taxation of labour and capital
will be higher than the taxation of consumption, what Figure 2 confirms. The taxation of employed
labour is roughly stable around 43-44% over the past ten years. Taxation of labour (employed) is higher