Does Tax Progressivity Affect Personal Income Tax Revenue? An Empirical Analysis of the European Union Countries

Abstract

Purpose | The article aims to measure and evaluate the progressivity of personal income tax (PIT) in the selected European Union countries and to identify the relationship between PIT progressivity and PIT revenue levels. Research method | Descriptive and comparative analysis, along with linear regression analysis were employed to determine the relationships between the variables. Results | Most of the studied countries exhibited a regressive progression in personal income tax. The findings reveal that countries with higher progression strength for childless single taxpayers and with higher GDP levels are characterised by higher tax revenues. However, the strength and direction of the impact of progression in PIT vary across EU countries. In most analysed countries, the increased tax differentiation based on the taxpayer’s family situation supports higher tax revenues. In 16% of the countries, an increase in PIT revenues coincides with a rise in progression strength for single taxpayers without dependents. Therefore, it is recommended to widen the rate spread for single, childless taxpayers, especially in high-income brackets, while applying tax preferences that significantly differentiate the taxpayer’s situation based on the family status (e.g., marriage, children). In Poland, PIT revenue growth is supported by reducing tax differentiation concerning the taxpayer’s family situation and increasing progression strength for childless single taxpayers (e.g. by broadening tax rate intervals and increasing rate increments within the scale). Originality / value / implications / recommendations | The study employs original indicators to measure the progressivity of personal income tax, accounting for both the degree and steepness of progressivity. There is a relationship identified between progressivity, as described by these indicators, and the level of PIT revenues in EU countries (and associated), both spatially and temporally (for the period 2005–2022). Unlike the previous studies on the impact of progressivity on tax revenue, which typically rely on local progression measures based solely on the degree of progressivity, this research uses an indicator incorporating both the degree and steepness of progressivity. This approach enables a more accurate estimation of the impact of progressivity on tax functions.