Marginal Effects of a Gross Income Increase for a Single Parent Family in Six European Countries

High marginal tax rates constitute an issue in several countries because they are supposed to create barriers for increased labour supply. It is, however, often the case that relatively low income families with children face substantially higher combined marginal rates than even the highest marginal tax rates. High combined marginal rates are generated by increasing payment for care for children in childcare institutions and tapering of housing benefits in addition to taxation, when income rises. These effects are often simultaneous and add to the marginal tax rate. This paper explores the contributions to the combined marginal rate, the marginal effective tax rate, METR, using the OECD term, from taxation, payment for childcare, tapering of housing benefits and sometimes child benefits, when the income varies from a low level to a high level for a single parent family. Six countries are included in the analyses: Denmark, Sweden, Norway, Finland, Great Britain, and Germany.