Tax burden or tax effor-min

Tax burden or tax effor?

General idea

The most popular indicator to measure the degree of tax collection in our economy is the tax burden meter. It is a ratio that relates all taxes collected in a nation to GDP.

Future scenario

In 2019, tax collection accounted for 34.4% of GDP (tax burden figure). However, our good governance says that we are below the European average in terms of tax collection, and there would be nothing to blame as the European average effectively stands at 41.2%.

Other countries also have a higher tax burden, such as France (48.4% of GDP), Belgium (47.2% of GDP) and Denmark (45.9% of GDP), Sweden (44.4% of GDP), Austria (42.8% of GDP), Finland (42.4% of GDP) and Italy (42.0% of GDP).

However, not everything is as it seems, as tax burden is not the same as tax effort.

The tax effort is the ratio between the tax burden and the average national income (per capita income) of a country. In this tax effort, the income received is measured (including the country’s proportional share of VAT), so it is a much more accurate measure. Let’s take an example.

In Spain, we have a VAT rate of 21%, although our tax rate is 8.5%. Germany, with a general VAT rate two points lower (19%) than Spain, has an effective rate of 10.6%.

The major limitation is that when analysing the tax burden, neither the tax design nor the distribution of the tax burden is taken into account. Another major drawback lies in each country’s income.

Sanz and Romero, from Funcas, say that “The same tax burden may require very different tax sacrifices. For example, if the Danish tax burden (45.4%) were applied to Spain, the tax effort required of Spaniards would be much higher: the Danes have a per capita income of 51,600 euros per year, while the Spanish per capita income is less than half that (24,000 euros)”.

In one of their studies, they tell us that in a study of the 20 main economies in the region, Spain would be in fourth place in terms of fiscal effort, only surpassed by Italy, Greece and Portugal.


In conclusion, if we look at the tax burden, Spain should raise taxes in order to control its deficit. On the other hand, if we look at our tax effort, we should ask ourselves whether our politicians are really right and we are below the average or whether we should make them look at this indicator to see whether or not we should raise our taxes.


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