The Economics and Empirics of Tax Competition: A Survey and Lessons for the EU
10 Pages Posted: 7 Jun 2014
Date Written: May 30, 2014
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
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