Cluster analysis of tax indicators in Europien countries

Abstract

Global trends indicate that at the current stage of European countries’ integration, the processes of unification of taxation and tax administration, and the convergence and harmonization of tax systems are taking place. Therefore, for thorough studying of these phenomena, it is important to classify countries according to the parameters of fiscal systems and tax policy. Our analysis of the tax indicators of European countries on the main groups of taxes according to the methodology of ESA 2010 develops the research in this field. The analysis was carried out by clustering methods in order to identify common and different features in the tax systems of European countries. This study covers 30 European countries for the periods 2018 and 2020. This paper focuses on the analysis of three main indicators of tax revenues. According to the ESA 2010 methodology, these are taxes on production and imports (D.2), current taxes on income and property (D.5), and net social contributions (D.61). Cluster analysis of the tax-to-GDP ratio was performed using a hierarchical agglomerative method and the method of k-means using software R Studio and STATISTICA 7.0. As a result, 5 clusters have been obtained. They are characterized by the following average values: 1) the cluster with the lowest total tax-to-GDP ratio, where income taxes predominate; 2) the cluster with the highest total tax-to-GDP ratio, high tax ratio on income and property, and low social contributions; 3) the cluster with an average tax-to-GDP ratio and the largest social contributions; 4) the cluster with an average tax-to-GDP ratio and the predominance of taxes on production and import; 5) countries, where all analyzed tax groups have a roughly equal ratio to GDP. The classification carried out for 2020 data revealed some insignificant changes in the clusters’ composition. These changes can be considered as a result of the tax policy to counteract the effects of the pandemic.