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European Tax: A Step Invigorating Tax Harmonization

12 Pages Posted: 16 Jan 2009  

Matjaz Steinbacher

Kiel Institute for the World Economy; University of Donja Gorica

Date Written: January 15, 2009


Paper tackles the question of introducing EU-level taxes. It does so by giving some key theoretical insights into the influence of taxation on economic performance and behavior of countries competing for tax bases in the Tiebout environment. Economic performance is studied using those dynamic endogenous growth models that allow for taxation. The distorting taxation argument is then complemented with the application of a simple tax competition game between tax jurisdictions. Underlying philosophical glue of the paper is Hayekian spontaneous order allowing the state only for ensuring security and the rule of law. End proposal allows neither for adopting any new tax nor for harmonizing current taxes on the EU level. It does so due firstly to economic inefficiency of such taxation and secondly to impeding effects on the level of individual and economic freedom that harmonizing taxes would bring. Finally, coordinating taxes among 27 EU countries is impossible also due to dispersed knowledge and different roles governments have in different countries.

Keywords: non-cooperative games, endogenous growth, fiscal policies, tax competition

JEL Classification: H30, H50, C72, D21, E22

Suggested Citation

Steinbacher, Matjaz, European Tax: A Step Invigorating Tax Harmonization (January 15, 2009). Available at SSRN: or

Matjaz Steinbacher (Contact Author)

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100

University of Donja Gorica ( email )

Podgorica, 81000

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