Income Tax Policy in Europe between Two Crises: From the Great Recession to the COVID-19 Pandemic

Michal Myck and Kajetan Trzciński ()
Additional contact information
Kajetan Trzciński: Centre for Economic Analysis, CenEA

No 15302, IZA Discussion Papers from IZA Network @ LISER

Abstract: We examine the revenue and redistributive effects of tax policy reforms in twelve European countries over the decade between the financial crisis and the outbreak of the COVID-19 pandemic, setting them against the implications of a hypothetical system reflecting the extent of fiscal drag resulting from nominal wage increases. We show that the combination of wage growth and progressivity of the tax system determined the fiscal leeway which governments could use to reduce income inequality. Despite significantly faster wage growth in the examined post-communist countries of Central and Eastern Europe, their much lower degree of progressivity implied limited additional scope for fiscal changes. While decisions taken in most of the examined countries in the CEE region led to increases in tax progressivity, their income tax systems continue to be far less redistributive in comparison with such countries as Ireland, the Netherlands, or Portugal. This not only has direct implications for income inequality but also translates into limitations of automatic fiscal drag effects on government revenues, which could offer additional resources, in particular at a time of high inflation.

Keywords: income tax; tax reforms; fiscal drag (search for similar items in EconPapers)
JEL-codes: D31 H24 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2022-05
New Economics Papers: this item is included in nep-eec, nep-pbe, nep-pub and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://docs.iza.org/dp15302.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp15302

Access Statistics for this paper

More papers in IZA Discussion Papers from IZA Network @ LISER Contact information at EDIRC.
Bibliographic data for series maintained by Mark Fallak ().