THE EFFECT OF FINANCIAL DEVELOPMENT ON TAX REVENUES: THE EXAMPLE OF G7 COUNTRIES

Abstract

Fiscal sustainability is among the important issues for EU countries, especially in the post-debt crisis period, as it is all over the world. In particular, the 2008 global financial crisis and the 2019 Covid pandemic have seriously affected EU countries as well as almost all countries in the world. In this context, fiscal policy tools are used effectively. Countries have announced bailout packages one after another, and these packages have created serious burdens on public finances. From this point of view, it is aimed to investigate the financial sustainability of 27 EU countries in the 2000-2020 period. The limitation in the date of publication of the data used in the study constitutes the time constraint. In this context, the panel regression analysis method was used and care was taken to ensure that the estimations made were robust to the heteroscedasticity and autocorrelation problem. As a result of the analyzes, it was concluded that there is weak fiscal sustainability in EU countries based on the relationship between public revenues and public expenditures, and there is no fiscal sustainability in EU countries based on the relationship between the primary budget balance and the share of public debt stock in GDP. The study differs from the studies in the literature in terms of both the method used and the sample country group.