The Economics and Empirics of Tax Competition: A Survey and Lessons for the EU

10 Pages Posted: 7 Jun 2014

See all articles by Thushyanthan Baskaran

Thushyanthan Baskaran

University of Goettingen (Göttingen)

Mariana Lopes da Fonseca

University of St. Gallen

Date Written: May 30, 2014

Abstract

We survey the theoretical and empirical literature on local and international tax competition in Economics. On the basis of this survey, we discuss whether EU countries should harmonise tax policies to prevent a race to the bottom. Much of the evidence suggests that tax competition does not lead to significant reductions in tax revenues. Therefore, we conclude that tax coordination is in all likelihood unnecessary to prevent inefficiently low levels of taxation in the EU. But since the evidence against the adverse effects of tax competition is not unambiguous, we also discuss whether intergovernmental transfers might be a less invasive means than outright tax harmonisation to prevent a race to the bottom.

Keywords: tax competition, tax coordination, European Union, fiscal federalism

Suggested Citation

Baskaran, Thushyanthan and Lopes da Fonseca, Mariana, The Economics and Empirics of Tax Competition: A Survey and Lessons for the EU (May 30, 2014). Erasmus Law Review, Vol. 7, No. 1, 2014, Available at SSRN: https://ssrn.com/abstract=2446831

Thushyanthan Baskaran (Contact Author)

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Mariana Lopes da Fonseca

University of St. Gallen ( email )

Bodanstrasse 8
SIAW-HSG
St.Gallen, 9000
Switzerland

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