The Tax Regimes of the EU Countries: Trends, Similarities and Differences

Abstract

The tax burden on wages, profits, property, goods and services has a serious impact on cross-country competiveness, something that in turn impinges strongly on the actual economy of common markets such as the European Union (EU). While the mobility of productive factors is directly related with country tax-regime differences, government budget funding from tax revenues and rates are the main fiscal policy tools.

This article analyzes the trends between the tax regimes of different countries for the period from1995 to 2009 and uses multivariate cluster analysis to identify similarities between cross-country tax regimes in the EU. The data are mainly collected from the OECD database and tax revenue departments at country level.

We argue that there are significant differences among the tax regimes of EU countries and that no policy has been implemented to ensure taxhomogeneity across the EU, nor is there any likelihood of such. Budget deficits have an impact on taxation and countries, invariably, manage the recent debt crisis by selecting different taxes as fiscal policy tools.

This article shows that the level of economic growth affects the structure of taxes at work and alters the performance of different types of taxes; it also wishes to explain the factors that differentiate tax regimes by using multi dimensional criteria, and thus, contribute to the debate for a common tax regime between EU countries.