Taxation and welfare

Abstract

The rise of the Welfare State after the Second World War has increased the importance of analyzing the welfare impact of economic and social policies . Despite taxation is one of the most important economic instruments in hands of the governments, the direct effect on welfare has not yet received attention. The difficulties in measuring welfare probably explains the gap existing in the literature . This work contributes to estimating the effect of tax level and tax structure on welfare in European countries over 2004 - 2014, trough panel data models. Besides , countries are grouped by Nordic, Continental, Anglo - Saxon, Mediterranean and Eastern European model s to further evaluate this relationship. Results suggest that fiscal pressure increases help countries improve welfare conditions, being labor taxes the ones with the largest effects. However, differences in such effect s between social models imply that th ese result s need to take country - specific particularities into account for adequate policy design.