Shaping the EU map from the fiscal and labour cost approach

Taxation plays a fundamental role in creating a fair society and building a strong economy. Through a well-structured tax system, it is possible to eliminate income inequalities and reduce production costs, including the labour costs. Fiscal policy can also have a large influence on employment decisions, investment levels and business expansion, all of which lead to stronger economic growth. At the same time, labour taxation plays an essential role in regulating imbalances on the labour market, influencing both labour supply and labour demand, through the impact on labour costs. Under such context, our paper aims to carry out a cluster analysis among the 27 EU member states to investigate how developed nations handle taxation of citizens’ income and where Romania ranks in terms of fiscality, earnings and labour costs among European countries. Using a set of relevant indicators, we were able to group countries into 3 clusters and to differentiate between developed economies with a robust tax system and less developed economies with a tax system with frequent changes leading to a lack of predictability.