Author(s)

Simonas Skarzauskas

Mykolas Romeris University, Vilnius, Lithuania.

The available literature on the relationship between the tax burden and financial stability is mixed, although some consensus exists on the negative effects of some taxes on economic growth. Since 2008, policymakers have striven to identify the financial vulnerabilities and to avoid the mistakes that led to the Great Financial Crisis. Various scholars studying the impact of tax burden focus on different aspects and generate controversial conclusions therefore a comprehensive methodology for assessing all types of factors and testing this methodology in the European Union (EU) context is lacking. Based on the analysis of scientific sources this paper presents a theoretical model that causally combines the components of tax burden and state financial stability. The newly constructed index was used to assess tax burden and the applicability of the index was verified by assessing the impact of tax burden on state financial stability in the 28 EU countries during the 2005-2019 period. According to the results of the empirical study (regression analysis), the increase in tax burden strengthened state financial stability in three country groups (High Tax Burden/Low Financial Stability; Low Tax Burden/High Financial Stability; Low Tax Burden/Low Financial Stability), while decreased in the High Tax burden/High Financial stability country group.

Financial Stability, Tax Burden, Impact, Index Calculation Methodology

Skarzauskas, S. (2021) Evaluating Impact of Tax Burden on State Financial Stability: Empirical Research of EU Countries. Theoretical Economics Letters, 11, 1122-1139. doi: 10.4236/tel.2021.116071.