THRESHOLD EFFECTS OF PUBLIC DEBT ON THE TAX BURDEN: EVIDENCE FROM EU MEMBER STATES
THRESHOLD EFFECTS OF PUBLIC DEBT ON THE TAX BURDEN: EVIDENCE FROM EU MEMBER STATES

Summary/Abstract: Purpose: The aim of our research is to assess the impact of public debt on tax burden within the member countries of the European Union (EU) during the period from 1995 to 2021.Methodology: The assessment of the impact of the public debt on the tax burden was implemented in two stages. Each of them uses two modifications of the model. Our methodology is based on multiple regression models. Findings: Our research findings suggest a dual impact of public debt on the tax burden: a reduction in the current period followed by an increase in future periods. Additionally, our study has unveiled that the influence of public debt on the tax burden is contingent upon the specific level of public debt being considered. Our findings confirmed that when public debt reaches a critical threshold of 55.88 percent of the GDP, any further government borrowing is associated with a consequent augmentation of the tax burden. Originality/value: Our analysis includes lagged variables to empirically examine whether public debt can possibly result in a higher tax burden in the future. In our study, we explore whether there exists a particular level of public debt at which the influence of public debt on the tax burden fundamentally changes direction.

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