Research On The Taxation Trends In The European Union Before And After The European Debt Crisis

A massive tax reduction occurred across Europe the last decades. Small economies agreed upon this trend first while the larger European countries, in economical matter, were gradually involved in this tax competition. Besides European Union, other countries and regions of the world outlined tax cut plans and on a while a worldwide tax-cut movement formed a trend.While since Iceland’s sovereign debt crisis surfaced, some European countries, especially the countries who suffered a lot in the crisis had shifted their fiscal policy. They launched a lot of tax rises and then act on them. But some economists insisted that the increasing of the taxes is catastrophic for the already wounded economy.Considering the arguments above, this Master Thesis introduces a prototype panel model. This model analyzes in depth the tax burden and the economics growth relation, and also the relation between tax burden and government liability. It is based on the tax rate, the government debt and the gross domestic product (GDP) by using a representative amount of the countries which suffer the most during this period. Both the tax breaks period and the European debt crisis period are taken in to consideration on the study of the relation between economic development and the tax burden. As a result, the economic development and tax burden in these two periods are negative correlation. In other words, an appropriate tax cuts will stimulate the economic growth. In the further research, the above negative correlation is more apparent in the European debt crisis than the tax breaks period. In addition, the relationship between tax burden and the government debt is not distinct, which shows that tax increases have little effect on improving a country’s finances. Finally, the conclusion is that the European countries should not increase the tax blindly, which could hinder the economic development.Nowadays the European debt crisis has been eased to a large extent. Meanwhile, the tax policy of European countries is more cautious in the post-crisis era. In general, these countries have introduced a structural tax cut which reducing the direct tax as well as improving the indirect taxes. Also, this new tax reform conforms to the trend in today’s worldwide structural tax cuts.Furthermore, the case of European countries’ tax cut and government debt policy provides some experience for our country’s structural tax cuts. China should not only follow the trend of world tax system reform, but also carry on its own tax reform with steps and dominant emphasis according to the conditions of China.