Tax systems and tax reforms in Europe: Rationale and open issue for more radical reforms

Countries were left at the starting post: fiscal pressure did not increase, nor was its structure
dramatically changed. Med club countries marked the main change. The total fiscal pressure
of the European development newcomers⁷ increased by about 10-15 points. Tax structure
changed markedly in favor of direct (in Spain also indirect) taxes.

2.2. Not enough convergence and narrow reforms: macro and micro issues

Table 2 shows a set of macro-indicators pertaining to tax systems’ convergence in our se-
lected countries, going from 1970 to 1997. As to the simple ratios to GDP, the convergence
processes (by competition or harmonization) seem to have impinged upon direct⁸ and still
more indirect taxes.⁹ Neither total taxes nor social contributions show clear signals of conver-
gence. What about tax burden? An analysis by economic functions (i.e. main aggregates of in-
ternal resources or employments, Eurostat 2000) as ratio to their overall value (more or less
the GDP), points out strong evidences of convergence for consumption and far lower for capi-
tal (be aware that “capital” here means all the heterogeneous incomes which constitute operat-
ing surplus in national accounting). Convergence for labor and total fiscal burden seem to
have been almost not existing at all. However different degrees of tax base buoyancy rather
muddy such evidence, thus calling for a closer look at the movement of tax structure as de-
picted by the implicit rates (i.e. the revenues on single factor or employment as a ratio of a na-
tional accounts potential tax basis: Martinez-Mongay 2000). Taxation on labor increased by
almost 50 per cent and at the same time diverged, heterogeneous capital was affected by a
stable rate converging taxation, while for consumption it remained much the

⁷ Italy adopted a fundamental tax reform in 1972, Spain not many years after (see Italy’s and Spain’s chapters).

⁸ This has been mainly due to the income tax, whose amount is largely prevailing inside this category. See below
for corporate and capital incomes taxes.

⁹ Do not forget that in 1970 a true income tax was still not in existence in many European Countries and VAT
was in force only in France.

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