The economic globalization has emphasized and elaborated the existing inter-dependencies between the national economies, favouring the development of the world economy, but at the same time, of the underground economy - a tax evasion generator. In the context of debating the tax evasion which is currently present in all the countries of the world, it is not possible to ignore one of the most important generating factors of this phenomenon, i.e. the tax burden. In our opinion, the tax burden in Romania is more current than ever, firstly, due to the fact that our country is in the phase of harmonizing the financial system with the community acquis and secondly, due to the fact that the Romanian economy is confronted with the lack of capital in the context of the world financial crisis, the incomes of the taxpayers are insufficient to be governed by an excessive tax policy, without giving birth to the evasion phenomena. This is the reason why I think it is convenient to perform an analysis of the implications of the tax burden over the tax evasion in the Romanian economy.tax burden, globalization, financial crisis

Iudit FODOR

English

Research Papers in Economics

298                                                                       Finance – Challenges of the Future                       
 
 
TAX BURDEN – THE TAX EVASION GENERATOR  
  
Iudit FODOR, PhD Student   
University of Craiova 
 
 
1. General provisions 
 
 Nowadays, due to an increase of 
the degree of civilization at global level, 
we witness a diversification and 
broadening of the human needs and, 
consequently, an increase in the demand 
for public and quasi-public goods. 
Therefore, the financial effort necessary 
for fulfilment of the human needs 
increases every year, leading to an 
overestimation of the demand for public 
financial resources which have a limited 
character, often insufficient.  
A major problem for the state 
authority is represented by the 
identification of some viable solutions for 
the procurement of these increasing 
financial resources.  
One of the solutions may be the 
uncovered monetary issue, but its effects 
on the stability of the medium and long 
term macro-economic indicators could 
prove to be harmful by broadening the 
inflationary tendencies. 
Contracting the state loans or the 
increase of the general degree of taxes 
may be considered viable solutions for 
attracting additional funds to the state 
budget, but it is obvious that both 
measures have the same result, the 
increase of the fiscal charge of the 
taxpayers, meaning an increase of the 
tax burden. Certainly, the effect of these 
measures is not popular but they are 
preferable to an uncovered monetary 
issue, when the disproportion between 
the offer and demand of the public 
financial resources is obvious and the 
public expenses can no longer be 
reduced.  
 
The general characteristic feature 
dominating the financial system of 
Romania after the revolution was the 
procurement of the public financial 
resources by broadening the taxation 
without taking into consideration its 
adverse effect, in the sense that it leads 
to an increase of the tax burden and if it 
becomes suffocating, it leads to the tax 
evasion phenomenon. 
 
2. Taxation rate: indicator of the tax 
burden 
 
In the specialty literature, the term 
of „tax burden” can be encountered 
under the form of other terms such as 
„tax coefficient”, „tax stress”, „tax 
pressure”, for the purpose of avoiding the 
negative connotations of the word 
burden, but they express the same idea, 
the taxpayer’s obligation to the state by 
means of the taxes. 
The tax burden represents the 
ratio of the incomes which the taxpayers 
must give up, in the favour of the state, 
under the form of taxes and charges, 
paying these amounts within their current 
liabilities to the state budget, the budget 
of the state social insurances, the local 
budgets and public funds. 
The tax burden is given by the 
taxation rate, which is computed as a 
ratio between the financial incomes from 
a certain period, usually a year, and the 
value of the gross domestic product, from 
the same period of a national economy.  
100  
PIB
V
R
f
f  
where: Year VIII, No.9/2009                                                                                                   299             
 
Rf       = taxation rate; 
Vf       = total financial incomes; 
P.I.B. =gross domestic product. 
 
This rate shows us the percentage 
of the gross domestic product developed 
in a year which is collected by the state 
by means of taxes, charges and 
contributions. The level of these 
indicators offers a picture over the tax 
burden exercised by the taxes, charges 
and contribution system over the 
taxpayer but also the picture of the public 
view regarding the development of the 
financing sources of the public expenses.   
We emphasize the fact that the 
taxation rate must not be mistaken by the 
rate of total levy rate (computed as a 
percentage ratio between the total level 
of the taxes and social contributions and 
the GDP), although in practice, this often 
occurs. 
According to some specialists  the 
total levy rate better expresses the 
productivity of the levy system,                     
than the burden incurred by the taxpayer, 
as this indicator is commonly mis-
interpreted. 
The tax burden indicator is 
commonly used in the performance of 
temporal and international comparisons. 
By analyzing Figure no.1.1, we can 
state that the countries with a high 
economic development have a powerful 
tax burden, while the reduced tax burden 
is a characteristic of the less developed 
or even under-developed economies. 
Still, related to the last statement, we 
must notice that it is not entirely true, 
because there are over-developed 
countries which have a moderate tax 
burden, or we can say even modest, in 
comparison to other countries, with a 
strong tax burden (Japan- 27.4%, United 
States of America – 28.2%). 
  
Figure no. 1.1. Taxation rate in the E.U. member states 
Norway, Japan and U.S.A. in 2006 
- in % in G.D.P.-
48.9
43.5 42.3
39.5 39.1
37.4 36.6 36.2 35.1 33.8 32.6 31.4 30.1 29.3 28.6
44
27.4
28.2
29.7 31
33.8
35.6 36.5 37.2
39.3
41.8 43.5 44.6
49.1
28.6
0
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40
50
60
DK
SE
BE
FR
FI
IT
AT
DE
NL
SI
GB
HU
CY
ES
CZ
PT
LU
BG
MT
PL
IE
GR
EE
LV
LT
SK
RO
NO
SUA
JPY
Taxation rate
Source: Eurostat Statistical Books, Taxation trends in the European Union, 2008 Edition 
The taxation rate in the member 
states of the European Union varies by 
more than twenty percentage points from 
the GDP, from 49.1% in Denmark to only 
28.6% in Romania.      
The taxation peaks are found in 
countries with almost complete social 
protection financing (Denmark – 49.1% of 
GDP, Sweden – 48.9% of GDP, Belgium 
– 44.6%, Norway - 44%, Finland – 
43.5%), but the taxation reaches high 300                                                                       Finance – Challenges of the Future                       
levels in other countries also such as 
France – 43.5%,  Italy – 42.3%, Austria – 
41.8%. Nevertheless, some countries 
with mainly universal financing, such as 
Great Britain, have a moderate taxation 
(37.4%).  
We observe that in comparison to 
the average of the European Union 
countries (37.1%), the taxation degree in 
Romania (28.6%) is apparently low, and 
this is due to both the unbalanced 
distribution of the charges, and, 
especially, to the low level of the gross 
domestic product, the economic agents 
frequently complaining about the 
excessive and burdening character of the 
taxation in our country which does not 
comply with the requirements of 
capitalization and economic recovery. 
While the taxation degree of our 
country follows the specific trend of the 
developed European countries, this has a 
confiscation tendency, because the 
amounts left after taxation, only ensure 
the necessary means for subsistence 
and do not cover satisfactorily all the 
human needs. 
We think that the taxation 
sustainability degree does not rely only 
on the absolute level of the tax duties, 
but also on the value of its affordability 
basis, the value of the gross domestic 
product respectively. 
In this context, the approach in 
relative terms of the taxation, through its 
rate, is not sufficiently relevant if it is not 
correlated with its real basis. 
Thus, the taxation rate in Romania 
(28.6%) is almost equal to the one in the 
USA (28.2%) but the real basis to which 
this rate is reported, the gross domestic 
product per capita respectively, is over 
10 times higher in the USA. 
The practical experience shows 
that at an approximately equal level of 
the taxation rate, this is much more 
affordable in a country with a higher 
gross domestic product per capita than in 
the countries where this is lower. The 
explanation comes from the fact that the 
gross domestic product per capita 
represents the „amortization cushion”
  of 
the tax burden. The increase of the gross 
domestic product per capita represents a 
way of improving and increasing the 
sustainability of the level of the taxation 
rate.          
 
3. Cause – effect relationship between 
tax evasion and tax burden 
 
The excessive tax burden, the 
reduced degree of sustainability of the 
obligations together with a hostile 
business environment and a difficult 
economic climate generates a rejection 
attitude and a tendency of avoidance and 
disregarding of the tax law from the part 
of the taxpayer and, subsequently, the 
practice of tax evasion by different 
means and methods. 
Many economists approve the 
thesis “the tax which kills the tax”, 
according to which the introduction of a 
new tax or the increase of the tax quota 
of an already existing tax decreases the 
sustainability degree of the charges. The 
taxpayers often try and succeed in 
avoiding the payment of the charges 
using evasion methods. 
The theory of the Canadian 
economist Arthur Laffer demonstrates 
this thesis.  
Regarding the relationship existing 
between the level of the tax evasion and 
the taxation rate, the Canadian 
economist formulated the theory bearing 
his name, according to which, the more a 
tax levy is based on increased tax rates,  
the more the financial revenues of the 
state increase, but after a certain tax 
limit, the revenues start to decrease, 
because this increase of the tax levy 
would lead to less work or it might cause 
the dissimulation of a part of the activity 
performed and its transfer to the 
unofficial side. 
His theory is illustrated by a curve 
(Laffer curve) which graphically 
emphasizes the moment of the ideal 
taxation rate, on the basis of the principle 
“too much tax, no tax”, according to 
which, when the tax level is null, the 
budget revenues are null and, also, when 
the tax level is 100%, the budget Year VIII, No.9/2009                                                                                                   301             
In a study performed by the audit 
and consultancy company 
Pricewaterhouse Coopers (PWC) and the 
World Bank, dedicated to the analysis of 
the costs determined by setting up a 
business in 178 countries, a company 
from Romania pays a number of 96 
charges, our country being “the leader” in 
the European Union and ranking fourth in 
the world.  
revenues are null; the optimum tax level 
must be identified between these two 
extremes in order to ensure a maximum 
of satisfaction both for the state budget 
and for the taxpayer. 
The specialists in the financial field 
have reached the conclusion that tax 
evasion is “more fearful, as the tax is 
higher”. 
The theory promoted by the Laffer 
curve has known a considerable practical 
impact in France and the U.S.A. but it is 
also very true that there have been critics 
regarding the practical applicability of the 
theory, starting with the premises that the 
taxable income flexibility in relation to the 
higher tax rates is very low. 
As it may be seen in Figure no. 
1.2., in Romania, the majority of the 96 
charges are in the field of work force, 
amounting to 60. In a year, a company 
must make 12 payments for each of the 
fields such as contribution to social 
insurances, contribution to health 
insurances, unemployment, the fund for 
the risk of accidents and for work 
inspection. 
The excessive taxation and its 
effects on the tax evasion may be 
approached from the point of view of 
the costs it generates. 
 
Figure no. 1.2. EU comparisons of tax payments 
 
Source: Paying Taxes 2008, The Global picture, www.pwc.com 
 
 
Other charges for the companies in 
Romania are levied for urban planning, 
the environment, stamp duty and fuel – 
each one every year – and four charges 
for the land, vehicles and buildings and 
for the incomes of the company. The 
number of charges paid is twice the 
number in other European countries, 
such as Poland (40 charges) or Slovakia 
(30 charges).  
In our opinion, this excessive 
taxation of the paid activity, aside from 
the fact that it produces serious 
economic distortions by reducing the 
number of jobs and increasing the cost of 
the Romanian products, also contributes 
to the increase of the black market labour 
and the avoidance of taxes for numerous 
incomes obtained from the activities 
performed.  
At a global level, Romania is only 
exceeded by Belarus with 124 charges, 
Uzbekistan with 118 and Ukraine with 
99. In the other EU countries, the number 
of charges is less than 30 per year.  
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Corporate income taxes Labour taxes Other taxes302                                                                       Finance – Challenges of the Future                       
Thus, the high number of taxes a 
taxpayer must pay and their quantum 
creates a high tax burden over the 
enterprise. 
Taking into consideration the other 
factors which act over the activity of the 
economic agent: the level of the demand 
and offer, the living standard of the 
population, the competition, the level of 
the sales, it is more and more difficult for 
the taxpayers to face the tax burden, 
being forced to transfer the taxable stock 
to a more accessible financial regime or 
to turn to evasion practices in order to 
survive. 
In this context, the cause – effect 
relationship between the tax burden 
and the tax evasion is manifested in the 
sense that the tax avoidance of some 
taxpayers narrows the taxation basis and 
the level of the public financial resources 
which generates a higher taxation 
burden, which, in its turn, shall motivate 
the tendency of other taxpayers to turn to 
the informal side of the economy.  
In the opinion of the specialists, 
when the legal and transparent system of 
the market economy is blocked, a 
spontaneous and favourable distribution 
of the financial resources occurs, 
although on hidden paths. 
 
When this “avalanche effect” 
occurs, the continuous and constant 
reduction of the taxation basis can no 
longer be compensated by a new 
increase of the taxation level and the 
causes which generated this evasion 
type behaviour of the economic agent 
must be removed. 
 
4. Conclusions 
 
In our opinion, the success of a 
national financial system is not related to 
sufficient money obtained from the 
taxation, but from the capacity of the 
system to develop the taxation basis, to 
stimulate the economy, to succeed in 
charging international businesses at 
national level and to stimulate the 
agreement of the taxpayers to pay the 
taxes and charges, this being the 
warranty that the taxpayer shall not 
breach the financial legislation. 
Although the financial policy 
promoted by the state authorities wants 
to meet a series of objectives, we think 
that first of all it should take into 
consideration the reduction of the 
taxation degree both by eliminating the 
contributions to some special funds and 
by re-settling the charge and the ratio 
between the direct and indirect taxes in 
order to give a positive influence to the 
taxpayer.  
We think that it is possible and 
achievable to increase the volume of the 
revenues  by  reducing  the  tax  rates                     
but applying them to a larger value of the 
taxable income.  
Thus, the tax reduction shall first of 
all determine the increase of the 
economic efficiency because there will be 
more investors and larger investments, it 
shall increase the number of the 
taxpayers and the volume of the taxes 
collected, thus recording an increase of 
the public revenues. 
Secondly, the taxation reduction 
may lead to a reduction of the 
underground economy, especially of the 
financial fraud, the black market labour 
and tax evasion or, on the contrary, the 
lack of compliance with the regulations, 
as an effect of the financial relief policy, 
may lead to encouraging some 
underground practices. 
Starting from the most visible effect 
of the tax evasion, i.e. not supplying the 
state budget with important financial 
resources, we think that, in order to limit 
the tax evasion phenomenon, the state 
authorities should consider, at the 
moment of making a financial policy 
decision,  the reduction and limitation 
of the tax burden, this measure being 
an efficient method in preventing and   
fighting this phenomenon, because it 
takes into consideration its cause and not 
its effects, that is the premises which 
motivate the tax evasion behaviour of the 
taxpayer.
  Year VIII, No.9/2009                                                                                                   303             
 
 
REFERINŢE BIBLIOGRAFICE  
 
REFERENCES 
A.P.Florescu Dumitru,  
Coman Paul,  
Bălaşa Gabriel 
Taxation in Romania. Regulation, Doctrine, Jurisprudence, 
All Beck Publishing House, Bucharest, 2005 
 
Craiu Nicolae 
 
Underground economy between „Yes” and „No”, Economic 
Publishing House, Bucharest, 2004 
 
Hoanţă Nicolae 
 
Tax evasion, Tribuna Economică Publishing House, Bucharest, 
1997 
 
Pătroi Dragoş 
 
Tax evasion between the permissive side, aspect of 
misdemeanours and character of felonies, Second Edition, 
Economic Publishing House, Bucharest, 2007 
 
Văcărel  Iulian  -
coordinator 
 
Public Finances, Fifth edition, Educational and Pedagogic 
Publishing House, R.A.., Bucharest, 2007 
 
Victor Munteanu –  
coordinator 
 
Financial – accounting control and audit, Lumina Lex Publishing 
House, Bucharest, 2003 
 
***** 
 
Eurostat Statistical Books, Taxation trends in the European Union, 
2008 Edition 
 
***** 
 
www. pwc.com - Paying Taxes 2008, The Global picture 
 

Tax burden - the tax evasion generator

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