Comparative analysis of the level of taxation in Romania and European Union

Author:Maria Zenovia Grigore Mariana Gurau
Position:Lecturer Ph.D., Economic Sciences Faculty, 'Nicolae Titulescu' University, Bucharest - Lecturer Ph.D. student, Economic Sciences Faculty, 'Nicolae Titulescu' University, Bucharest
236 Lex ET Scientia. Economics Series
Maria Zenovia GRIGORE
Mariana GUR;U **
This paper contains a statistical and economic analysis of the tax system of Romania in the
last decade, as well as comparisons with the other states of the European Union.The overall tax
ratio of Romania, i.e. the sum of taxes and social security contributions in the Gross Domestic
Product (GDP), is the lowest in the European Union. Considering the fact that the GDP value,
that constitutes the denominator of the overall tax ratio, includes estimates of production by the
informal sector (the “grey” and “black” economy), this reduction can be explained not only by
tax reductions, but also by the high tax evasion.
Keywords: taxation, tax revenues, tax policy, tax system, implicit tax rates
Taxes bring revenues to the public budget and those who pay them are directly interested by
the system and the way in which the government spends the money. Taxes are the basis of a stable
and prosperous society. As a result of the global economic crisis, the collecting of taxes is more
and more difficult. Although is quite obvious that governments have to increase taxes and reduce
public expenses, they will have to take these measures carefully, given the fact that „too much tax
kills the tax”.
We shall present in this work in a concise and theoretical way the concept of tax burden
(emphasizing the factors which determine its level and the consequences of the level of tax burden
upon the economy of a country), then we will analyse the level of taxation in EU and Romania in
the last decade, and finally we will try to identify the taken fiscal measures and the ones that
should be taken by the government of Romania, and by the governments of other Member States,
for answer to the present global financial crisis.
The greater part of data presented and analysed in this work are taken from the 2010 edition
of the report „Taxation trends in the European Union”1, published by Eurostat, the Statistical
Office of European Union and European Commision - Taxation and Customs Union. This report
presents a number of fiscal harmonized indicators, based upon The European System of Accounts
(ESA95), a system which allows a fair comparison of taxation systems and fiscal policies between
the Member States of EU.
Lecturer Ph.D., Economic Sciences Faculty, “Nicolae Titulescu” University, Bucharest (e-mail:
** Lecturer Ph.D. student, Economic Sciences Faculty, “Nicolae Titulescu” University, Bucharest (e-mail:
Maria Zenovia Grigore • Mariana Gurau
The present work focuses also upon the report „Doing Business 2011”2, realised by the World
Bank (WB) in co-operation with International Financial Corporation (IFC) and upon the study
„Paying taxes 2011”3, realised by WB, IFC and PricewaterhouseCoopers (PwC). This last report
looks at tax systems from the business perspective, because business plays an essential role in
contributing to economic growth and prosperity by employing workers, improving the skills and
knowledge base, buying from local suppliers and providing affordable products that improve
people’s lives. Business also pays and generates many taxes. As well as corporate income tax on
profits, these include employment taxes, social contributions, indirect taxes and property taxes.
Therefore, the impact that tax systems have on business is important. The two reports of WB, IFC
and PwC analyze the facility in paying taxes in 183 economies from world-wide. The indicators
used measures the cost of taxes paid by a standard company, but also the administrative charges
due to accomplishment of fiscal obligations. Both aspects are very important for a company. These
are measured through the identification of three sub-indicators: total tax rate (cost of all paid
taxes), necessary time to accomplish the fiscal obligations (income tax, social security
contributions paid by the employer, property taxes, transfer of properties taxes, dividends tax,
capital income tax, financial transactions tax, wastes collecting taxes, as well as motor vehicle
taxes and road taxes), as well as the number of fiscal payments made by the company during a
fiscal year.
1. Tax burden. Factors of influence and consequences
Tax burden shows the level of pressure of taxes or in other words, how much is the fiscal
burden lying heavy on tax payers’ shoulders. The most common way to measure the tax burden of
a country is the overall tax ratio (OTR), i.e. the sum of taxes and social security contributions as a
percentage of gross domestic product (GDP). This indicator reflects the part from revenues created
at the level of real economy that is shifted to the State through the taxes and social contributions.
OTR is influenced by two categories of factors: external and internal.
Through the external ones, we can mention:
- the level of development of the country, given by the GDP value per inhabitant. Usually, the
tax burden is greater in the countries which have a high level of GDP per inhabitant since the
capacity of fiscal contribution of inhabitants is higher in these States.
- the level of taxation from other countries. The fiscal policy of a state has to take into
consideration the fiscal policies of other countries, since a high tax burden can determine a
migration of money and manpower to countries with a lower taxation.
- the level and structure of public expenses. In countries where public expenses for education,
culture, health, social security etc. are greater, the State can pretend higher taxes, since their degree
of reversibility is substantial.
The internal factors which influence the level of taxation are:
- the type of used tax rates (generally progressive or proportional rates). In states where the
progressive rates are most used, the tax burden is higher.
- the methods of valuation and determination of the used tax base. Different methods can
determine an overvaluation or an undervaluation of the taxable product.

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