Economic and Institutional Determinants in Fiscal Pressure: An Application to the European Case

Abstract

The objective of this study has been to undertake an analysis of the economic and institutional determining factors of fiscal pressure in a group of European countries with different levels of economic development, recent history, or level of cooperation and integration among them. We have used a panel of data from 40 countries and a time period of eleven years. Apart from the variables generally used, we have introduced additional ones such as governing party ideology, rate of economic freedom of Euro-area countries, together with another set of institutional variables. Results obtained show that the purely economic model improves when institutional and geopolitical variables are included and, in this way, it is possible to see which countries governed by the left, belonging to the Euro-area or having been members of the Soviet block, and with economic liberty, are more liable to increase fiscal pressure.

Modelling the Influences of Economic, Demographic, and Institutional Factors on Fiscal Pressure Using OLS, PCSE, and FD-GMM Approaches

“…The results allow us to conclude that there is a positive and significant relationship between some economic (public spending, public deficit, cereal yield), demographic (age dependency), and institutional (rule of law) factors and fiscal pressure, confirming the results generated by previous studies [7,18], which demonstrates the validity of our analysis. The relationship between public spending and fiscal pressure is positive because a decision to increase the level of public spending to encourage demand (public or private) can be based either on a tax increase, with direct effect on short-term fiscal pressure, or through the increased public debt, with a long-term impact on fiscal pressure.…”

“…Thus, although in some previous analyses [7,18] there is a positive relationship between the level of GDP per capita and the level of fiscal pressure, in our study, the negative result can be explained by the fact that, as the level of income per capita increases, a constant tax rate can lead to a relaxation of fiscal pressure.…”

“…The link between the institutional variables and the tax rate is still poorly exploited in previous research [12,18]; there are approaches that note the importance of these factors for the quality of public finances in general and the tax system in particular, or approaches that conclude that there are no implications for the tax system. The interesting aspect appears when considering the institutional-political factors, taking into account the level of development of the respective countries.…”

An Econometric Approach Regarding the Impact of Fiscal Pressure on Equilibrium: Evidence from Electricity, Gas and Oil Companies Listed on the New York Stock Exchange

“…As a case in point, using data from 40 European countries investigated during eleven years, Molina-Morales et al [21] analyzed various factors shaping fiscal pressure, including economic freedom of Eurozone members and the ideology of the ruling party. Results showed that Eurozone members, countries ruled by left-wing parties, and countries that were former members of the Soviet bloc were more likely to exhibit a higher fiscal pressure on their citizens.…”

The Tax Burden on Wastewater and the Protection of Water Ecosystems in EU Countries

“…It has been shown that both economic and institutional variables are determinants of the tax burden [30,31], while social variables determine the acceptance of environmentally-driven tax increases [32,33]. In other cases, tax structures are influenced by the political leaning of the party in government [34].…”