Tax Payment and the Performance of SMEs: A Longitudinal Analysis on EU Countries

Abstract

Small and medium enterprises (SMEs) are considered the engine of any economy and actively contribute to the economic growth of countries. For this reason, there are concerns regarding the identification of the factors that influence the activity of SMEs and, in particular, how they manage to adapt and obtain better performance in a constantly changing economic environment. The tax burden is high and discouraging for many enterprises, so we aimed to analyse the relationship between the taxes imposed on SMEs and their performance. Thus, the main purpose of our study was to analyse the relationship between the taxes paid by SMEs and their performance. The period of analysis consisted of the 14 years between 2008 and 2021. The analysed sample comprised the 27 member countries of the European Union. To test the relationship, we used panel data methods, and we considered two indicators that measure the performance of SMEs as dependent variables and indicators that measure the taxes paid by businesses as independent variables. For a more in-depth analysis, we used clusters of countries. The main results show that the taxes that SMEs have to pay are seen as obstacles in the way of improving performance. Moreover, the relationship between taxes and the performance of SMEs depends on the specifics of the economy of the country.