Abstract:

The aim of this study is to examine the causal relationship between the level of democratization and tax revenues in the period of 2010- 2020 in 33 European Union (EU) member and candidate countries. The causal relationships between the variables were tested with the Emirmahmutoğlu-Köse (2011) panel causality test based on the Toda–Yamamoto (1995) test. According to the results of the analysis, bidirectional causal relationships were determined between the level of democratization and tax revenues based on the relevant countries and period throughout the panel. When evaluating the country-based causality results, one-way causal relationships from democratization level to tax revenues were found in Albania, Greece, Ireland, Moldova and North Macedonia; one-way causality from tax revenues to democratization level was found in Croatia, Cyprus, Lithuania, Luxembourg, Malta, Romania, and Slovenia; and bidirectional causal relationships were found between the level of democratization and tax revenues in Poland and Ukraine. In addition, no causal relationships were found between tax revenues and the level of democratization in Austria, Belgium, Bulgaria, Czechia, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Latvia, Netherlands, Portugal, Spain, Slovakia, Sweden, Serbia, or Türkiye. The empirical findings of the study indicate the causal relationship between the level of democratization and tax revenues to differ due to such things as the political, economic, social, and institutional characteristics of the countries.

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