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Income inequalities and tax changes in the European Union during the crises

The aim of this paper is to identify the effects of tax changes during the crisis on income inequality across the member states of the European Union. The recent financial and fiscal crises have changed taxation trends in a large number of EU member states. The member states have been hit differently by the crisis depending mostly on the different degree of macroeconomic imbalances in the economy. Therefore policy responses varied among them and were strongly connected with macroeconomic and fiscal conditions. The paper includes theoretical background, comparison of present differences among the taxation systems of the EU member states, and advantages and disadvantages of different types of taxes. The issue of tax cuts or tax increases is very politically charged, and connected with the role of government and different views about inequality. The taxes and transfers have significant redistributive impact and this development affects income inequality according to the type of tax implemented. Social security contributions and consumption taxes tend to be regressive in most countries and due to reductions related to capital taxation the redistributive impact of those taxes has also been reduced. Most member states have tried to consolidate public finances and improve their tax systems in a more growth-friendly way. In almost all EU member states, the tax reforms implemented during this period were connected with revenue increases. An interesting phenomenon is that increases in indirect taxes do not seem to be accompanied by corresponding cuts in labor taxation which would lead to a reduction in labor costs.

income inequality; macroeconomics effects of taxation; crisis; European Union

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