The impact of fiscal policies on corporate insolvencies in the European countries

Abstract

The institution of bankruptcy is necessary and obligatory in any market economy. Mostly, a company's insolvency is caused by the simultaneous effect of different causes, which act on the various indicators of the company's business. In addition, the practice has shown that a firm does not fail suddenly, but the process of performances decrease extends over a long time. That is why, it is important to analyse the impact of fiscal policies on corporate insolvencies. The effects of fiscal policies on the economic growth have been extensively studied in the literature. To achieve the purpose of the research, we analysed the link between the level of fiscal policies and the corporate insolvencies in the European countries. A correlation-regression analysis was conducted on a sample of 32 countries over the period 2013-2017. From the analysis results, it is evident that the low fiscal freedom leads to a lower level of corporate insolvencies. Our findings suggest that EU governments and policy-makers need to acknowledge that in order to develop the European framework for restructuring and bankruptcy management it requires the right fiscal policies.