The Relationship between the Structure of Tax Revenues and the Structure of Public Expenditure in the Member States of the European Union

Purpose: The primary goal of the paper is to identify the relationship between the structure of tax revenues and the structure of public expenditure in the EU-28. Design/Methodology/Approach: Linear regression was used to estimate the correlation between the share of indirect and direct tax revenues in total tax revenues and the share of expenditure for specific purposes in total public expenditure in the EU-28. Then, using the sign of the slope as the criterion, the EU-28 was classified by dividing the set into countries with a positive dependence (+), for which the lower and upper bound of the confidence interval of the slope are positive, and countries with a negative dependence (-), for which both the lower and upper bound of the confidence interval is negative. Countries classified as positive or negative are also countries for which the F test confirmed the linear dependence. Findings: Based on the conducted research, it was found that the relations between the structure of tax revenues and the structure of public expenditure varied in the EU Member States in the years 2004-2019. Very strong or strong correlations between the share of a given tax group in total tax revenues and the share of specific expenditure in total public expenditure were observed only in relation to indirect taxes. In the case of direct taxes, no such relations were observed. Practical Implications: The results of the research are important from the point of view of the implementation of fiscal policy in the EU Member States, including the need to shape tax systems that not only provide revenues necessary to cover public expenditure, but also take into account tax fairness. Originality/value: The research adds value to the knowledge of contemporary tax systems, in particular to their redistributive function in relation to tax fairness.