Trends in income taxation: are taxes converging in Central and Eastern European countries?

Bernardelli, Michał; Felis, Paweł; Jamroży, Marcin; Lipiec, Jacek; Malinowska-Misiąg, Elżbieta; Szlęzak-Matusewicz, Joanna; Otczyk, Grzegorz

doi:10.2478/ijme-2023-0019

Figures & Tables

Indicators showing the characteristic features of the tax systems in the countries covered by the study. IND.1: current taxes on income, wealth, etc., as a percentage of the GDP; IND.2: taxes on the income or profits of corporations, including holding gains, as a percentage of the GDP; IND.3: taxes on the income or profits of corporations, including holding gains, as a percentage of the total; IND.4: taxes on individual or household income, including holding gains, as a percentage of the GDP. GDP, gross domestic product; IND., indicator.

Speed of convergence to the reference series in the years 1995–2018. The value “0” indicates perfect similarity between countries, and “1” indicates divergence from the reference country. GDP, gross domestic product; IND., indicator.

Speed of convergence to reference series in Group 1 (Bulgaria, Croatia, and Romania) in terms of the particular indicators. The value “0” indicates perfect similarity between countries, and “1” indicates divergence from the reference country. GDP, gross domestic product; IND., indicator.

Speed of convergence to reference series in Group 2 (Czechia and Slovakia) in terms of the particular indicators. The value “0” indicates perfect similarity between countries, and “1” indicates divergence from the reference country. GDP, gross domestic product; IND., indicator.

Speed of convergence to reference series in Group 3 (Estonia, Hungary, Latvia, Lithuania, Poland, and Slovenia) in terms of the particular indicators. The value “0” indicates perfect similarity between countries, and “1” indicates divergence from the reference country. GDP, gross domestic product; IND., indicator.

Selected characteristic features of taxation systems and applied tax incentives

Bulgaria	Low flat tax rate Tax incentives for regional development, creating jobs, transfer of technologies, or promoting exports Tax preferences in industrial zones
Croatia	A hybrid system (components of income and consumption taxation) R&D tax relief Tax preferences for the SME sector
Czechia	Lump sum tax-deductible expenses Tax losses can be carried forward R&D tax relief Tax reliefs for investment projects Shortened depreciation period for selected fixed assets Fixed-flat-rate income tax rates
Estonia	Profits are not taxed until they are distributed Simple tax system with limited set of tax preferences From 2018, lower tax rate for companies making regular profit distribution
Lithuania	Many tax preferences designed to promote entrepreneurship and innovation Some incentives limited in time Tax preferences offered in the SEZs
Latvia	Profits are not taxed until they are distributed Favorable tax rates for small businesses Tax preferences in the SEZs and free ports (Ventspils and Riga)
Poland	Tax preferences designed to share development risks between entrepreneurs and the state budget (tax losses can be carried forward) R&D tax relief Tax preferences in SEZs
Romania	Tax preferences for microbusinesses R&D tax relief Tax preferences in SEZs
Slovakia	Tax-deductible expenses – real or lump-sum costs R&D tax relief Tax reliefs for investment projects
Slovenia	Special solutions applicable to funds (venture capital, investment, and pension) Tax incentives
Hungary	Alternative minimum tax Many tax reliefs and exemptions

Descriptive statistics for the selected indicators of the CEECs and EU-15 countries

Statistics	IND.1		IND.2		IND.3		IND.4
	Current income taxes (% of GDP)		Corporation income taxes (% of GDP)		Corporation income taxes (% of total)		Individual income taxes (% of GDP)
	EU-15	CEE	EU-15	CEE	EU-15	CEE	EU-15	CEE
Min	13.6	6.2	2.4	1.8	6.4	5.7	9.9	4.1
Mean	14.2	7.3	3.0	2.2	7.6	6.9	10.3	4.8
Q1	13.9	6.9	2.6	2.0	6.8	6.2	10.1	4.4
Median (Q2)	14.2	7.3	3.0	2.2	7.8	6.7	10.3	4.7
Q3	14.4	8.0	3.2	2.4	8.3	7.5	10.5	5.0
Max	14.8	8.6	3.6	3.0	9.1	9.0	11.0	5.7

Division into groups of the most similar countries using k-means clustering method

Country	Group 1	Group 2	Group 3
Bulgaria	✓
Croatia	✓
Czechia		✓
Estonia			✓
Hungary			✓
Latvia			✓
Lithuania			✓
Poland			✓
Romania	✓
Slovakia		✓
Slovenia			✓
Arithmetic mean
IND.1 – Current income taxes (% of GDP)	6.42	7.50	7.71
IND.2 – Corporation income taxes (% of GDP)	2.59	3.35	1.76
IND.3 – Corporation income taxes (% of total)	8.76	10.07	5.28
IND.4 – Individual income taxes (% of GDP)	3.45	3.64	5.71

Trends in income taxation: are taxes converging in Central and Eastern European countries?

Figures & Tables

Figure 1.

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Selected characteristic features of taxation systems and applied tax incentives

Descriptive statistics for the selected indicators of the CEECs and EU-15 countries

Division into groups of the most similar countries using k-means clustering method

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