Categorisation of European Union Mmember Countries: The Relation Between Tax Evasion and Short-term Fiscal Imbalance

Abstract

The fiscal imbalance can be determined by many factors of economic, monetary or fiscal environment. The main goal of the paper is to create, choose and assess a meaningful categorisation of the European Union member countries that show homogeneity in the fiscal balance and the level of tax evasion. The purpose of the research by using hierarchical methods is to study relations between tax evasion (expressed as shadow economy) and short-term fiscal imbalance (expressed as primary balance) and to verify an assumption that the European Union countries with high values of the tax evasion report negative values of primary balance and vice versa. The research results point to significant differences between four identified clusters of multidimensional objects. The provided cluster analysis does not prove the preliminary assumption about the negative relation between tax evasion and primary balance. The analysis represents a background for further analysis of the effect of tax evasion on fiscal imbalance.