The available literature on
the relationship between the tax burden and financial stability is mixed,
although some consensus exists on the negative effects of some taxes on
economic growth. Since 2008, policymakers have striven to identify the
financial vulnerabilities and to avoid the mistakes that led to the Great
Financial Crisis. Various scholars studying the impact of tax burden focus on
different aspects and generate controversial conclusions therefore a
comprehensive methodology for assessing all types of factors and testing this
methodology in the European Union (EU) context is lacking. Based on the
analysis of scientific sources this paper presents a theoretical model that
causally combines the components of tax burden and state financial stability.
The newly constructed index was used to assess tax burden and the applicability
of the index was verified by assessing the impact of tax burden on state
financial stability in the 28 EU countries during the 2005-2019 period.
According to the results of the empirical study (regression analysis), the
increase in tax burden strengthened state financial stability in three country
groups (High Tax Burden/Low Financial Stability; Low Tax Burden/High Financial
Stability; Low Tax Burden/Low Financial Stability), while decreased in the High
Tax burden/High Financial stability country group.
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