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The Influence of Taxation on Income Inequality: Analysis of the Practice in the EU Countries

Author

Listed:
  • Sergey Dianov

    (Graduate School of Industrial Economics, Peter the Great St. Petersburg Polytechnic University, Politechnicheskaya St., 29, 195251 St. Petersburg, Russia)

  • Lyudmila Koroleva

    (Department of Economic Security and Risk Management, Finance University under the Government of the Russian Federation, 49 Leningradsky Avenue, 125167 Moscow, Russia)

  • Natalia Pokrovskaia

    (Modern Financial Technology Laboratory of St. Petersburg University, Saint Petersburg State University, 7/9 Universitetskaya Nab., 199034 St. Petersburg, Russia)

  • Natalia Victorova

    (Graduate School of Industrial Economics, Peter the Great St. Petersburg Polytechnic University, Politechnicheskaya St., 29, 195251 St. Petersburg, Russia)

  • Andrey Zaytsev

    (Graduate School of Industrial Economics, Peter the Great St. Petersburg Polytechnic University, Politechnicheskaya St., 29, 195251 St. Petersburg, Russia)

Abstract

The growing economic inequality around the world is recognized as a global problem of mankind. At the same time, the key tool for reducing inequality and ensuring the achievement of sustainable development goals is the taxation system given its distributive function. That is why this paper puts forward and proves a scientific hypothesis according to which direct taxation has a significant impact on economic inequality, with its scale and sphere depending on the level of economic development and the specific architecture of the tax system adopted in a particular country. The study relies on data from 28 European Union countries, including the United Kingdom, whose tax systems are not identical but harmonized in accordance with European Union directives, the same as the legislation in other economic sectors. Accordingly, it can be concluded that similar institutional characteristics are present. We have used the method of two-stage cluster analysis, which is meant for identifying the natural splitting of the mass of data into groups, then carried out regression analysis and built some models. The contribution of the study is revealing a number of important regularities that are significant for characterizing the dependence of income inequality on direct taxation as well as formulation recommendations for improving the tax policies of European Union countries, with the potential of policy implications. The results obtained can play a significant role in the development and further harmonization of tax systems and resolving the global problem of increased inequality within and between countries.

Suggested Citation

  • Sergey Dianov & Lyudmila Koroleva & Natalia Pokrovskaia & Natalia Victorova & Andrey Zaytsev, 2022. "The Influence of Taxation on Income Inequality: Analysis of the Practice in the EU Countries," Sustainability, MDPI, vol. 14(15), pages 1-19, July.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:15:p:9066-:d:870466
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    References listed on IDEAS

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    1. Dias, Thiago & Gonçalves, Sebastián, 2024. "Effectiveness of wealth-based vs exchange-based tax systems in reducing inequality," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 641(C).

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