Fiscal pressure or tax pressure refers to the amount of money in taxes that the taxpayers pay the State compared to the gross domestic product (GDP) .
In other words, fiscal pressure is an economic term that refers to the amount of money that the State receives from individuals, families and other entities required to pay taxes (taxpayers) taking as a reference the gross domestic product.
Taking the gross domestic product (GDP) as a reference, it is a magnitude expressed as a percentage. So if the total tax paid is 30 and the GDP is 100, then the tax burden is 30%.
In addition, it is important to define three details. The first of them is that it refers to the payment of taxes, not taxes. A tax is a type of tax, but it is not the only type of tax. The second detail is that we must include all taxpayers. Families and companies are liable for taxes, but they are not the only ones that have an obligation with the Treasury . And third and last, it is calculated on what is paid not on what should be paid. See tax evasion
How is the tax burden calculated?
The formula used to calculate the tax burden is very simple. We only need two data. On the one hand, the gross domestic product expressed in the corresponding currency, and on the other, the total tax revenue expressed in the same currency. Therefore, the formula for fiscal pressure is:
Fiscal pressure = [Total tax revenue / Gross domestic product (GDP)] x 100
That is, a division is made between total tax revenue and GDP and we find a magnitude between 0 and 1. When multiplied by 100 we have the measure expressed as a percentage.
On what does the tax burden depend?
Obviously, the tax burden may be of greater or lesser magnitude. Thus, some countries may have a tax pressure of 30% and others 60%. But on what does its amount depend?
It stands to reason if taxes go up (as part of the taxes), then the tax burden will increase. However, the scientific literature does not make this fact entirely clear. While it is true, of course, that assuming that everything remains constant (ceteris paribus) an increase in taxes will raise the tax burden. For example, if 20 were previously paid taxes and now 40 are paid, assuming that GDP is maintained, the tax pressure increases. Conversely, if previously 40 were paid and now 20 are paid, assuming that GDP is maintained, the fiscal pressure would drop.
Apart from this obvious deduction, there are other determining factors that could motivate total taxes to be more or less. In other words, why are some countries paying more taxes than others and, consequently, can there be greater tax pressure?
- Structure of the tax system
- Political-economic regime
- Demographic characteristics
- Economic structure
- Level of development
- Cultural factors
- Quality of institutions
Example of tax burden
Next, we are going to develop an example to calculate the tax burden of a fictitious country. Suppose the following data:
- GDP: $ 110.520 million
- Total tax revenue: $ 35,276 million
In light of the above data, we apply the formula and obtain:
Fiscal pressure = [35,276 / 110,520] x 100 = 31.92%
The fiscal pressure of this country is 31.92%. What can be interpreted, as that 31.92% of the production is destined to pay taxes. In other words, if a year has 365 days, then a company, for example, allocates 116 to pay taxes. Translated into months, we would say that an individual or company allocates the production of something less than 4 months to pay the State of the country of the example.