By Cristina Enache, The Tax Foundation

In recent years, European countries have undertaken a series of tax reforms designed to maintain tax revenue levels while protecting households and businesses from high inflation.

These policies include reducing value-added taxes (VAT) and excise duties, indexing the income tax to inflation, and cutting tax rates for low-income families. Some countries introduced temporary windfall profits taxes while others reduced environmental taxes.

Nevertheless, according to an Organisation for Economic Co-operation and Development (OECD) report, many countries experienced an increase in tax revenues after the pandemic while growth outpaced the rate of GDP expansion.

If this trend is to continue through 2022 and 2023, it would suggest that governments used this inflationary scenario to raise more revenue, rather than protecting citizens from inflation.

The largest increases in tax-to-GDP ratio were observed in Norway, Lithuania, Spain, and Germany. The main drivers behind the revenue increases were corporate taxes and VATs. On the other hand, eight European countries registered a decline in their tax-to-GDP ratio with Hungary registering the largest fall at 2.2 percentage points.