Tax policy responses to the 2008-2010 economic downturn in EU countries

Following the serious turmoil that had affected world financial markets during 2007 and 2008, in late 2008 the world entered a major recession, the deepest since the 1929 Great Depression. The financial crisis, and the ensuing generalised loss of confidence in financial markets, resulted in strong constraints to the liquidity of the economic system. This triggered a contraction of demand, which in turn caused cuts on investments and jobs, in a downward spiral. In 2009, GDP fell by 4 percentage points over OECD countries, demand shrank drastically, industrial production and global trade contracted and unemployment in industrial countries swiftly rose into double digits. Signs of slow recovery started being detected in the second half of 2009, but by mid 2010 world economic conditions were still weak. By late 2008 both governments and central banks had taken swift and unprecedented measures to contrast the effects of the financial crisis. These actions prevented the world from going through an economic collapse similar to the one experienced in the 1930s. In addition, many governments approved also major fiscal stimulus packages which, together with the effects of automatic stabilisers, help contain the economic downturn and paved the way for the economic recovery. This paper focuses on policy responses to the crisis implemented in the EU and on the steering role taken by EU institutions. After briefly detailing the main prescriptions for governments put forward by EU institutions in late 2008, the paper describes the main tax reforms introduced by individual EU Member States in 2009-2010 as part of their fiscal stimulus packages, to contrast the economic downturn and favour economic recovery. It also proposes an assessment of the major trends characterizing the discretionary tax reforms implemented