Tax revenues (including revenues from compulsory social security contributions) as a percentage of GDP declined in 16 of the 27 OECD countries which reported data, with EU countries showing most of the drop.
Figures were not yet available for the two largest OECD economies, the United States and Japan, or for Australia, but in 2001 these numbered 28.9%, 27.3% and 30.1% respectively and had fallen from 2000 levels.
In the EU tax revenues slid to 40.5% from 41.0% in 2001, with declines in 11 member countries and increases in four. Sweden had the highest tax burden in the EU at 50.6%, while France still had the fifth highest at 44.2%. Both saw their tax take ease in 2002. Ireland had the lowest burden, at 28%.
Tax cuts may explain some of the decreases in tax revenues, with 15 OECD countries reducing their top personal income taxes and 12 countries lowering their main corporate tax rates since 2000. However, another major cause of the overall fall was probably the economic slowdown of the last few years. While in some ways this fall in tax revenue may be welcomed, in that excessive tax burdens can constrain economic growth, the drop was perhaps not such good news to some governments, particularly those currently trying to manage their wide public deficits.
Just as downturns reduce tax revenue, so growth boosts it. Korea, New Zealand, Poland and the Slovak Republic all had increases in tax revenues in terms of GDP, while experiencing fast growth; Korea’s GDP increased by 6.3% in 2002, compared with 3% growth in 2001.
©OECD Observer No 240/241, December 2003