Degree of Personal Income Taxation Convergence in the Eurozone

Purpose: The purpose of this article is to assess tax regime similarities among Eurozone countries in the field of Personal Income Tax, given that human capital is highly mobile and thus affected by the design of a country’s tax code. Design/Methodology/Approach: Using information on the Central government personal income tax rates and thresholds, available on the OECD Tax Database, this article employs dendrograms to present similarities of tax regimes and clustering of homogeneous Eurozone countries for four different years (2003–2008–2013–2018), in order to capture the effects of the 2008 economic crisis in the design of personal income tax systems. Findings: Our findings suggest a great degree of divergence in the design of personal income tax systems, especially regarding the degree of progressivity as well as top income brackets and marginal rates. It is interesting to observe how clusters of groups of countries with similar tax regimes are differentiated through time. Originality/Value: Most of the literature, when comparing different tax regimes, focuses on tax revenues and average tax burdens. The value of this research stems from the fact that it provides a similarity analysis, based on the actual design of the tax schedule. Results can be indicative of the degree of convergence in Eurozone countries, thus providing tax authorities with a transparent methodology to assess the level of fiscal harmonization.