Tackling the Fiscal Paradox from the Angle of Taxation: a Comparative Analysis of the Strategies Followed by EU Member States (2007-2015)

Since the late 2010s, the economic crisis has put the fiscal policies of the EU member states under an unprecedented pressure. Shrinking economies have curbed the revenues of the general government while increasing the demand for compulsory and non-compulsory social expenditure. The crisis has thus opened a window of opportunity for governments to redesign their fiscal policies for higher effectiveness and sustainability. Yet, it is often maintained that institutional conditions and policy legacies have left national governments with different room to maneuver. Where the external constraints of the Stability Pact commit governments to balance their budget, the dynamics of the crisis trap governments in the paradoxical need of pro-cyclical moves despite decreasing voters’ consensus. The trap would have been almost inescapable under a constitutional commitment to balanced budgets and under weighty public debt and debt service. The contribution narrows on the strategies that EU governments have adopted after 2007 to tackle the fiscal paradox from the angle of taxation. This perspective is especially promising because of the manifold purposes that the instrument serves. Taxation enforces a normative paradigm of social justice beyond official narratives, as it decides who bears the burden and who deserves not to across social groups. Besides, it provides governments with effective tools for promoting changes in behavior that can boost or dampen the performance of the economic system. Last, it provides governments with mechanisms to maximize revenues in the short run. Each of these purposes, moreover, calls for a special governance regime that emphasize the centrality of the national government or the capacity of subnational authorities instead, and gives a different role to policy knowledge. The study considers the contribution of changes in rates, base, centralization and relevance of more or less automatic sources of revenue to ascertain (1) national patterns of taxation policy; and (2) their association to social inequality and economic performance under different institutional conditions and legacies. The analysis, mixing multivariate analysis with Qualitative Comparative Analysis, is expected to identify those strategies that have proven to contribute to domestic socio-economic resilience, and those that have undermined it, while yielding context-sensitive lessons to learn.