STABILITY OF FISCAL REVENUES IN EU: WHAT TO TAX?

Аннотация

Certain and predictable tax revenues are desirable by states to run fiscal policy smoothly and minimize
any negative effects of business cycles. Over the last decades sizes of government budgets in most EU Member States
have experienced rather small transformations. However, particular kinds of taxes contribute to that stability to
different extent. Although, this matter is important from the perspective of state budget, it has not been analysed
thoroughly before – especially in EU. Based on statistical analysis of macroeconomic data I calculated that revenues
from payroll taxes feature especially low variability and positively influence the budget constancy. Changes over time
are slightly bigger for taxes imposed on production. Inflows from taxation of income of corporations are particularly
unstable. These findings may support policymakers in appropriate budget revenues design.
Expansionary fiscal policy is believed to boost economic growth ( (Aschauer, 1989), (Munnell, 1990)). Public
investments are traditionally believed to support long-term growth of economies (Barro, Government Spending in a
Simple Model of Endogenous, 1990). On the other hand low taxes should support development of economy as well
((Engen & Skinner, 1992), (Daveri & Tabellini, 2000), (Karras & Furceri, 2009), (Padovano & Galli, 2001) or (Lee &
Gordon, 2005) to mention only selected research). For example Romer and Romer estimated that a 1% increase in
taxation relative to GDP induces reduced output of up to 3% over the following three years (Romer & Romer, 2007).
Mountford and Uhling claimed that tax cuts - even if financed from budget deficit – are most effective from the
perspective of economy growth (Mountford & Uhlig, 2008). Blanchard and Perotti found that tax shocks affect
investment, consumption and output (Blanchard & Perotti, 2002).
However, some empirical analysis failed to confirm significance of the relation between GDP and tax rates
((Easterly & Rebelo, 1993), (Mendoza, Milesi-Ferretti, & Asea, 1997)). The correlation between the level of the tax
rate and output was found to be indeed negative but sometimes non-existing. These results are in line with common
sense. However, in the long run high public spending cannot be combined with low taxes (assuming that low taxes
transfer into smaller budget revenues). High public deficits, which may arise in consequence of expansionary fiscal
policy, are eventually harmful for economic growth in the long-run. Therefore, satisfactory inflows from taxes are
desirable.
Maintaining balanced budgets is a typical objective of several world economies. Yet this requirement seems key
for European Monetary Union states, which use single currency and hence lead common monetary policy [1]. To
improve economic stability of those countries and to provide for at least impeded policy-mix tools, certain requirements
related to fiscal policy were imposed on them. According to the so called Convergence Criteria (also known as
Maastricht Criteria)(i) the ratio of the annual government deficit to GDP must not exceed 3 percent and (ii) the ratio
of government debt to GDP must not exceed 60 percent. However, several Member States are struggling against high
budget deficits which are followed by excessive public debts. Most EU Member States have been returning to balance
over last years and in 2017 almost half of them recorded government surplus. However, the budget deficit for the EU
as a whole is still substantial and in 2017 amounted to 81.6% of its GDP. This is far more than before the crisis in 2007
when a figure of 57.5% of GDP was recorded. Moreover, although from peak in 2014 general government debt
decreased on average in a number of Member States, still in 2017 as much as 12 out of 19 eurozone countries bound
by the Maastricht criteria recorded debt above required level of 60% of local GDP. Identification of reliable sources
of state revenues may provide a useful tool to cope with that issues.