Part I

Overall tax revenue

As detailed in subsequent sections of this chapter, the

developments since 2009 differ significantly by type of
tax. Consumption taxes such as VAT and excise duties
significantly increased since 2009; in addition, a
number of Member States raised the top rate in the area
of personal income taxation. CIT rates continued to
decline after 2009 but at a lower pace in comparison
with the beginning of the decade and in 2012 the EU
average even increased marginally. However, the tax
revenue data presented in this report are available only
until 2010 and hence the effect of many of the above
mention rate hikes is still not visible. Overall, the taxto-GDP ratio (unweighted average) declined by 1.4
percentage points with respect to 2000 and by 0.2
compared to 2009.

O
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Cyclical factors behind revenue developments

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Comparing cyclically adjusted tax revenues (4) with

actual ones reveals the effects of the economic cycle
behind tax revenue developments (Graph 1.3). While
tax hikes were behind the revenue increase in the 19951999 period, it was entirely due to the cycle that tax
revenue rose from 2004 until 2006. The tax-to-GDP
ratios show a structural reduction in the midst of the
economic and financial crisis (2007-2008), while a
trend reversal is visible in 2009-2010, mostly driven by
hikes in VAT and PIT rates on the back of
consolidation measures adopted.

government tax revenue, a measure that is slightly

different but closely linked to the overall tax ratio used
in this report (6), to increase markedly (by one point of
GDP, in the weighted average), until 2013. Also
general government expenditure has increased
considerably: from 2007 to 2010 it rose by more than
five points of GDP, surpassing the 50 % mark.
However, the expenditure ratio started declining
already in 2011 and the trend is forecast to continue
until 2013 when the expenditure ratio is forecast to be
two points of GDP lower than in 2010.
Wide disparities in tax levels across Member
States
Differences in levels across the Union are quite
marked; the overall tax ratio ranges over more than
twenty points of GDP, from 27.1 % in Lithuania to
47.6 % in Denmark (see Map 1.1 and Table 1 in Annex
A). In other words, the tax burden in the highest-taxing
EU Member State is over 75 % higher than in the least
taxing one.
Map 1.1: Distribution of total tax burden, 2010

Graph 1.3: Cyclically adjusted tax revenues

42.0

2.0

41.0

1.5

40.0

1.0

39.0

0.5

38.0

0.0

37.0

-0.5

36.0

-1.0

35.0

in % of GDP

in % of GDP

1995-2010, in % of GDP, GDP-weighted average

-1.5
1995

1996

1997

1998

1999

2000

Cyclical component EU-25

2001

2002

2003

2004

2005

Cyclically adjusted revenues EU-25

2006

2007

2008

2009

2010

Tax revenue EU-25

Source: Commission services

Upward revenue trend expected after 2010

As for future trends, the EU Commission forecast from
November 2011 (5) projects the EU-27 general
(4)

(5)

20

The Hodrick Prescott (HP) filter is used in this report to identify the underlying
trend in GDP and revenues. This HP filter is a purely statistical method, which
can be easily applied to any time series, including GDP and tax bases. The HP
method needs to be clearly distinguished from the Production Function
Approach (PFA), which is the reference methodology (endorsed by ECFOFIN
Council on 12 July 2002) for the cyclical adjustment of public finance
aggregates. For more details, see European Commission (2011c) and the
detailed methodology of the report available [http://ec.europa.eu/taxtrends].
See European Commission (2011a)

Taxation trends in the European Union

(6)

General government tax revenue for 2011-2013 does not exclude voluntary
social contributions and do not cover indirect taxes levied by national
governments on behalf of the EU institutions.