THE FUNCTIONAL MISSION OF TAX SYSTEMS IN ENSURING ECONOMIC GROWTH IN EU MEMBER STATES

Abstract

The paper examines the functional mission of EU tax systems in fostering economic growth, emphasizing their evolution from a primarily fiscal role toward an integrated framework that also performs allocative, redistributive, and stabilizing functions. It highlights cross-country differentiation in tax structures, the pressures of tax competition, and the policy context of digitalization and the green transition. Pupose. To develop a conceptual framework explaining how the configuration of tax instruments (mix of direct/indirect taxes, tax burden, environmental taxation, and digital administration) transmits to growth via investment, labor utilization, and productivity, and to outline principles of balanced tax policy and harmonization relevant to the EU and Ukraine. The study synthesizes theory and evidence to show that growth-friendly systems rely more on consumption and recurrent property taxes while limiting distortions from corporate and labor taxation; automatic stabilizers and well-designed discretionary measures support macroeconomic resilience; digital tax administration (e-invoicing, e-reporting, risk-based compliance) reduces gaps and increases revenue stability; and green taxation and CBAM can align decarbonization incentives with competitiveness when paired with targeted compensation and investment support. The combination of direct and indirect taxes and taxation models, namely proportional, progressive and regressive, are analysed. Their impact on entrepreneurship and innovation is indicated. The approach combines a theory driven synthesis with comparative profiling of member states and a channel based logic model that links policy parameters to macroeconomic outcomes. In practical terms, the framework yields diagnostics and implementation checklists that help sequence reforms, calibrate country specific tax mixes, and prioritize digital investments within fiscal and institutional constraints. A balanced, transparent, and flexible tax design, combining an efficient tax mix, strong administration, and credible green incentives, best reconciles growth, equity, and sustainability goals. The framework offers practical orientations for EU policy coordination and for Ukraine’s tax integration trajectory.