The tax disincentives to create new jobs have been falling faster in Ireland than in any other state in the developed world, according to figures published yesterday by the Organisation for Economic Co-operation and Development (OECD).

Economists at the Paris-based OECD have been comparing the size of "the tax wedge" - the difference between what employers pay out in wages and social security charges and what employees take home after tax and social security deductions and any cash benefits, such as child benefit.

This wedge is regarded by the OECD as important in influencing the behaviour of employers and employees.

For employers, a small tax wedge provides greater incentive to take on new employees. For would-be or actual employees, a large tax wedge is a disincentive to join the labour force or to take on more work.

OECD analysis released yesterday shows that the size of the tax wedge fell more sharply in the Republic than in any other of the 30 OECD states.

Between 1996 and 2003, the tax wedge for a married person with two children earning the wage of an average industrial worker was reduced by 18.3 per cent in the Republic - almost double the next biggest reduction, which was in Hungary, where the tax wedge shrank by 9.9 per cent. The United States (8.3 per cent), Italy (8.2 per cent) and the UK (7.0 per cent) had the next biggest reductions. The tax wedge increased in 11 countries, among them the Netherlands, Canada, Austria and Norway.

Ireland's reduction was proportionately the largest, even though its tax wedge is small compared with most other developed states.

The tax wedge is 7.4 per cent for a married person with two children earning the wage of an average industrial worker, compared with 40 per cent in France, 39.5 per cent in Sweden and 42.1 per cent in Turkey. For the childless single person, again earning the wage of an average industrial worker, the tax wedge is still only 24.5 per cent, lower than any other European Union state.

The OECD figures show that at the average earnings level, childless single workers in Belgium, Denmark and Germany pay more than 40 per cent of their annual wages in personal income tax and employee social security contributions. In Greece, Ireland, Japan, Korea, Mexico, Portugal, the Slovak Republic and Spain the personal average tax rate was below 20 per cent.

The OECD analysis also assessed the extent to which tax burdens are family-orientated, by comparing the tax wedge for a single person without children with those of a single-earner family with two children. In Ireland, the difference is greater than in any other OECD state.

Similarly, the analysis compared the tax wedge for someone earning much more than the average wage (167 per cent) with someone earning much less (67 per cent). Again Ireland stood out as having a slanted tax system.

In Ireland the tax wedge of the lower earner as a percentage is only half the size of that of the higher earner, whereas in the Netherlands both earners have proportionately similar burdens.