Strategies for Addressing Tax Evasion from the Standpoint of EU Tax Rates

Tax evasion is a major challenge for the sustainability of public finances and the fairness of tax systems. This paper investigates the relationship between tax rates and tax revenue in the European Union, with a particular emphasis on the role that tax evasion plays in this relationship. Using an empirical analysis based on panel data covering the period 2012–2023, this study examines the impact of statutory and effective tax rates, trade openness, economic development, structure of tax revenues, digitization of public administration, governance quality, and the level of total tax revenues. The findings suggest that statutory tax rates do not properly explain the differences in tax revenues across countries. In contrast, effective average tax rates offer a better measure of the fiscal burden actually experienced by taxpayers. Altogether, the report’s findings indicate that sustainable improvements in tax revenue in the European Union rely less on changes to statutory tax rates and to a greater extent on consolidating tax administration. These conclusions contribute to strengthening institutional capacity and combating tax evasion in the form of structural and targeted governance reforms. This study makes a contribution to the existing literature by providing empirical evidence from the European Union and by highlighting the importance of effective taxation and governance in the process of achieving sustainable public revenues.