Tax evolution in the EU: A convergence club approach

Abstract

Summary: This paper investigates tax convergence in 15 European Union member states using annual data from 1975 to 2011. We follow the proposal of Peter C. B. Phillips and Donggyu Sul (2007) to test the convergence club hypothesis, complemented with a preliminary sigma convergence study, and focusing on the tax burden and tax mix with the major OECD subdivisions. Our results suggest sigma convergence in all cases, but to different degrees. We identify convergence clubs, with several clusters in each tax category and differences between the whole sample and the two sub-periods analyzed, namely 1975-1994 and 1995-2011.