THE IMPACT OF TAX CHANGES ON INCOME INEQUALITIES IN THE EU DURING THE FINANCIAL CRISIS

The aim of this paper is to identin, the effects of tax changes that occurred during the financial crisis on income inequality across European Union member states. Namely, the recent financial and fiscal crises have changed taxation trends in a large number of the European Union member states. The member states have been differently affected by the crisis primarily depending on the different degree of macroeconomic imbalances ascendant in the economy. Therefore, policy responses varied among them and were strongly connected with macroeconomic and fiscal conditions. The paper includes a theoretical background, comparison of present differences among the taxation systems of the European Union member states, and an analysis of the advantages and disadvantages of different types of taxes. In order to precisely define those differences, the influence of reforms taken in three major tax forms (labour, capital and consumption) was tested, as well as social security contributions using fixed and random effect panel models over the sample period from 2000-2011. Taxes have a significant redistributive impact and this development affects income inequalities and depends on the type of tax implemented. Most member states have tried to consolidate their public finances and improve their tax systems in a more growth friendly way. This paper presents a hypothesis that the implementation of selected fiscal measures influences inequality reduction and demonstrates that the overall social contributions and labour taxes lead to statistically significant improvements in income inequalities among EU member states. We conclude that tax policy, specifically the choice of taxes implethented, reduces income inequalities in the EU in the observed period.