engleski

The effects of tax changes in the EU on reducing income inequality

In this paper we discuss and analyze the effects tax policies have in reducing income inequality of the European Union (EU). Overall, we consider the EU economies as a whole but elaborate on the differences that exist between the new (EU-13) and the old member states (EU-15) because of heterogeneous levels of development and policy across the EU. Among the EU countries there are numerous differences related to tax structure and tax burden per capita resulting with different roles of tax policies in fiscal systems of EU countries. Those differences are particularly evident between old and new member states. Tax systems of the EU-15 member states are older, more inert, stabile, but relatively complex and comprehensive. On the contrary, the tax systems of the EU-13 member states are younger and generally much simpler, but not necessarily more efficient. In terms of the tax structure, most EU-15 member states raise roughly equal shares of tax revenues from direct taxes, indirect taxes, and social contributions, while the EU-13 member states often display a substantially lower share of direct taxes in total tax revenues. Different characteristics of the tax systems resulted with different tax policy responses and reform measures taken in order to mitigate the effects of the recent crisis on government budgets. In order to precisely define those differences we test the influence of reforms taken in three major tax forms (labor, capital and consumption) and property taxes as well as social security contributions and expenditures on social protection using fixed and random effect panel models over the sample period 2002 - 2012. This paper presents a hypothesis that implementation of selected fiscal measures influence inequality reduction. We demonstrate that the overall social contributions and personal income taxes lead to statistically significant improvements in income inequality among EU member states. We conclude that tax policy, specifically the choice of taxes implemented, reduce income inequality in the EU-28 in observed period.

income inequality; taxes; social contributions; crisis; Europen Union

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