Does Taxation Influence Efficiency of Public Services Provision: Case of European Countries

Abstract

Public services are identified as services provided by the government of certain jurisdiction (country or local community) in order to ensure citizens’ welfare and social protection. The efficiency of public services provision depends on numerous economic, social, and institutional factors. In turn, numerous scientific debates are about the optimization of taxation in order to increase the efficiency of public goods provision. Therefore, the purpose of the research is to clarify empirically the cohesion between public services provision and taxation for the sample of European countries (Latvia, Lithuania, Estonia, Czech Republic, Germany, Slovak Republic, Hungary, Poland, Romania, Bulgaria, Slovenia, and Ukraine) for 2005-2018. Correlation analysis and panel data regression analysis results allow concluding that provision of public goods (safety, education, health care) highly dependent on social contributions and taxes on goods and services, and less on taxes on income, profits, and capital gains. Moreover, tax growth dynamics in chosen European countries is twice, triple or even five times more rapid than growth dynamics of all dependent variables (only government expenditures on education and social contributions annual growth rates are almost equal). Such a discrepancy might result in an increase of social tensions, shadow economy, intensification of tax avoidances and tax evasion processes, lack of population to government loyalty. All this proves the necessity of improvement of financial resources redistribution in order to improve the efficiency of public services provision. Keywords: budget, government expenditure, government efficiency, public goods, tax revenue.