TITLE:
Taxation and Financial Stability: Cluster-Based Insights from EU States
AUTHORS:
Simonas Skaržauskas
KEYWORDS:
Financial Stability, Tax Burden, Impact Assessment, Quantile Regression, Cluster Analysis
JOURNAL NAME:
Theoretical Economics Letters,
Vol.14 No.6,
December
2,
2024
ABSTRACT: This study investigates the relationship between taxation and financial stability in the European Union (EU) from 2005 to 2019, a period that encompasses a full economic cycle, including the 2008-2009 financial crisis. The EU’s diverse economic landscape, with varying tax systems, provides an opportunity to analyse the interaction between tax burden and national economic development. Using a quantile regression approach and hierarchical clustering (Ward method), the study examines the effects of different taxation levels across 28 EU member states. The research highlights the role of tax structures in promoting economic growth while maintaining financial stability, addressing how tax reforms—particularly lowering taxation rates while broadening the tax base—can impact financial systems. The findings demonstrate that while tax burdens play a critical role in shaping financial stability, this relationship varies across countries and time periods. Data from international organisations such as the World Bank and Eurostat were utilised to support the empirical analysis. This paper contributes to the ongoing discussion on optimising tax policies to foster stable and competitive financial environments in the EU, especially in the wake of the global financial crisis.