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 South-East Europe. The recent financial and fiscal crises has changed taxation trends in both the EU and non EU (candidate countries) states. The member states have been hit differently by the crisis depending mostly on the different degree of macroeconomic imbalances in the economy. However, countries in South-East Europe share some common properties given historical preferences to macroeconomic policies (this is especially true for countries of former Yugoslavia). 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 and non-EU countries of South-East Europe, 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 EU member states have tried to consolidate public finances and improve their tax systems in a more growth-friendly way, however, this was not the case with non-EU countries of South-East Europe. In almost all EU member states, the tax reforms implemented during this period were connected with revenue increases which resulted in increases in tax revenue. 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. However, both the EU and non-EU countries of South-East Europe failed to raise more tax revenues and are running excessive budget deficits and unsustainable public debt. We will employ a panel data approach due to data constraints (country by country would be better but time series are short).

Keywords: income inequality, taxation, crisis, European Union, South-East Europe

JEL classification: E62, H24, H25, H30