68th International Atlantic Economic Conference

October 08 - 11, 2009 | Boston, USA

Comparison Between Taxes in the EU-19 and USA, and the Causes of Differences Between Them

Saturday, October 10, 2009: 4:55 PM
Andrea Schvábová, Ing. , Finance and Accounting, University of Economics in Prague, Prague, Czech Republic
Alena Hartlová, Ing. , Finance and Accounting, University of Economics in Prague, Prague, Czech Republic
Comparison Between Taxes in the EU-19 and USA, and the Causes of Differences Between Them

Andrea Schvabova

Alena Hartlova

University of Economics in Prague Abstract

Although tax burdens in the EU and USA were approximately the same at the beginning of the 1960’s, today the difference between tax burdens in these two areas is more than 10 percentage points. In 2007 the tax-to-GDP ratio in the USA was 28.3%, while the ratio in the 15 original EU states was 39.8%. Broadening the scope of the comparison to include the central European countries of the Visegrad Group (the Czech Republic, Slovakia, Poland and Hungary) lowers the EU tax burden slightly, to 38.7%. One potential reason for this is the generally lower tax burden in the post-communist countries, which are trying to attract foreign capital by creating favorable tax policies. The structure of the tax systems and level of tax burden are influenced by an entire range of factors, including economic, cultural, administrative and technological considerations.

Tax burdens vary widely among EU countries. While Sweden and Denmark achieved tax-to-GDP ratios of nearly 50% in 2006, this ratio was no higher than 32% in Ireland and Greece that same year. There are also fairly marked differences in the post-communist countries of Central Europe: while in Slovakia the tax-to-GDP ratio was slightly less than 30%, the ratio was 7% higher in Hungary. In general, however, these countries contributed to the lower average tax burden in the EU.

The question remains what has contributed to the sharp increase in tax burden in the EU (in comparison to the USA) over the last forty years, or in other words, which types of taxes have contributed the most. The objective of this article is to compare the development of the tax burden and tax mix in the original 15 EU countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom), the countries of the Visegrad Group, and the United States of America, as well as to attempt to determine which types of taxes contributed the most to the increase in difference in tax burden.

Keywords: tax burden, tax revenue, EU countries, tax structure