Annals of the University of Oradea: Economic Science (Jul 2014)
EURO AREA FISCAL STRUCTURES. A MULTIVARIATE ANALYSIS
Abstract
The European framework for fiscal policies is constructed mainly on the objective of monitoring budget balances and public debt, allowing national governments to decide on the specific fiscal policy that is more suitable to their internal context and public needs. However, for Euro Area member states this autonomy is restricted by the conditions imposed through the Stability and Growth Pact. As the recent macroeconomic dynamics underlined the necesity of improving the fiscal outcomes, the fiscal framework was updated and modified by the provisions of the new European economic governance meant to avoid unsound and unsustainable fiscal policies that could affect the stability of other Euro Area member states. The Six-Pack, the Fiscal Compact and the other conditions imposed by the reform of the fiscal governance framework are meant to ensure more discipline in drafting and executing national budgets. Even so, national authorities maintain their fiscal sovereignty and the decision regarding fiscal structures remains at their disposal, as long as the drafts are approved and the outcomes are maintained in the limits imposed through the supranational fiscal framework. Regardless of the numerous differences between member states, similar trends regarding tax mixes can be noticed in time. The objectives of this paper is to analyze fiscal structures of Euro Area member states and to determine, if any, groups with similar fiscal structures, their composition and the similarities that characterize Euro Area in this respect. In order to have a clear overview of fiscal structures within Euro Area, we analyzed data for 17 member states, for year 2012, taking into consideration total general government revenue, indirect taxation, direct taxation and social contributions. As one of the aims of this paper is to determine whether in Euro Area the main contributors are corporations or individuals, we also analyzed the structure of direct taxation, dividing it into taxes on income of corporations and taxes on income of individuals and households and other current taxes. Actual social contributions were also split into employer’s actual contributions, employee’s social contributions and social contributions of self- and non-employed persons. As the primary data analysis revealed many differences between Euro Area member states, but also similarities concerning various fiscal aggregates, we completed the analysis through multidimensional analysis, with the aims of classifying Euro Area member states into subgroups with similar fiscal structures. Taking into consideration the above mentioned variables, we used cluster analysis in order to determine which member states have similar fiscal structures and which are the main similarities that characterize Euro Area in this respect.
