Tax Policy under the Curse of Low Revenues: The Case of Romania (Part I)

Abstract

The Romanian tax revenue-to-GDP ratio has been far below the average level of both the European Union and the New Member States for many years. The decade long growth cycle hid significant structural imbalances in the public budget. This paper attempts to identify reasons why tax revenues in Romania are the lowest among the EU-27 countries. It takes a broader perspective by looking at the main sources of tax revenues over the last two decades. Implications of the policy regime change following the introduction of flat tax in 2005 are considered. It also does a few comparisons with other countries from Central and Eastern Europe by looking at the main tax revenue components.