Figure 2 - Total taxes (including SSC) in percentage of GDP in 1995 and 20050102030405060SEDKBEFRFI ATITSI
EU-27DEHULUNLUKCZBGESCYMTPTELPLEEIELVSKLTRO USJapan%GDP1995 2005n.a. n.a.Source: European Commission (2006).OECD (2005b). US and Japan: 1995 and 2003.When looking at the evolution of individual countries, several exceptions stand out. First, some countries
have been particularly successful to stabilise their total tax-to-GDP ratio either from the 1970s – this is
the case of Ireland and United Kingdom – and this at levels around 35%, or from the 1980s – such as
Germany (at about 40%), Belgium, Luxembourg, and the Netherlands (all at about 45%). Second, the
level of taxes in the economy has dramatically increased – by some 10 percentage-points – in Finland,
Greece, Italy, Portugal and Spain in the 1980s and 1990s, although starting at comparatively low levels.
The same 'catch-up' effect occurred in Cyprus and Malta over the last decade. Third, for the most recent
period, some of the recent Member States have experienced important decreases in their total tax
burdens. This is the case of the Slovak republic (about 10 p.p.), Estonia (7 p.p.), Latvia (about 4 p.p.),
Poland and Hungary (both about 3 p.p.). Interestingly, the bulk of these changes have occurred in the
second half of the 1990s.
Finally, about half of the Member States have experienced a decrease in their tax-to-GDP ratio between
2000 and 2005. This decrease was especially marked in Germany, Greece, Finland, the Netherlands,
Slovak republic, and Sweden. In 2005, latest year available, the GDP-weighted average for the EU-27
was at 39.6%. It ranges from 28.0% in Romania to 51.3% in Sweden.
2.2. The three tax pillars.
Most tax systems in the world rely on three pillars: direct income taxes, indirect taxes on consumption
and social security contributions. The European Union does not differ in that respect, although it
generally relies proportionally more on consumption taxes (because of its developed VAT system) and
on social security contribution than other developed economies.^9 The respective shares of these three
components have been quite close over time, staying within the 30-35% range. Direct taxes are volatile
and largely influenced by the business cycle. The ratio of indirect taxes to GDP steadily increased until
1999 before slightly levelling off in the most recent years (but the share of indirect taxes in the total has
increased over the last decade). This increase is due to developments in VAT collection that represented
about 5% of GDP in 1970 to reach over 7% in 1999, partly explained by the creation of VAT systems in
Portugal (1986), Spain (1986), Greece (1987) and Finland (1995). At 13.8% of GDP and 35% of total
(^9) See for example OECD (2001).