Determinants of Tax Revenue Performance in European Countries: A Panel Data Investigation

Abstract

ABSTRACT The purpose of this paper is to investigate the existence and directions of the causal relationships between the level of tax revenue and a set of determinants, using data from 26 European countries for the period 2015–2018. In particular, by applying the panel cointegration method and estimating panel-based Error Correction Models, the long-run and causal relationships between the variables, are being explored. The results of the analysis confirm the existence of cointegration relationships (long-run relationships) and suggest a significant degree of interdependence. In particular, the investigation showed that the level of GDP per capita and public debt, the assessment of the level of control of corruption, the government effectiveness index, the degree of the efficiency of tax administration and the level of tax rates (individuals and corporate) significantly affect the level of tax revenue collection. The analysis also confirms the existence of macroeconomic interdependence (interconnection) between the European countries.