Tax Harmonization versus Tax Competition: A Review of the Literature (Part 2)

Obviously, the many pieces of literature reviewed in this paper use differing assumptions and approaches to support their unique conclusions. This diversity is important for several reasons: First and foremost, it confirms the fact that taxation within the EU is a subject that is by no means consensual, and that disagreement exists even among attempts to explain the main drivers that determine tax rates and convergence. Nevertheless, there is a general agreement on the pressures facing EU members, and a recognition that the tax question cannot continue unaddressed. In the current situation, traditionally higher tax countries like Germany "insist on tax harmonization and the adoption of minimum rates, especially where there is high cross-border mobility…" (Tsoukalis, 103) In contrast, smaller "tax havens" staunchly oppose any such harmonization. Finally, it should be remembered that the rest of the world could play an important role in determining an outcome. After all, "is the objective of a Union tax regime completely futile in the context of global capital markets?" (Tsoukalis, 131) The tax issue (and the prospect of harmonization) has been on the table since the Treaty of Rome, and will likely remain there for quite some time. Yet, what the literature does positively establish is that harmonization is not necessarily the only reasonable response to increasing integration. And despite serious study and debate, no optimal solution to the tax question has surfaced. Rather, a diverse variety of seemingly plausible options now demand attention from the EU and its members.

Bibliography

1.Baldwin, Richard and Krugman, Paul, "Agglomeration, Integration, and Tax Harmonization," CEPR Discussion Paper No. 2630, November 2000.

2.Boss, Alfred, "Do We Need Tax Harmonization in the EU?" Kiel Institute Working Paper No. 916, March 1999.

3.Fourçans, André and Warin, Thierry, "Tax Harmonization versus Tax Competition in Europe: A Game Theoretical Approach," CREFÉ Working Paper No. 132, April 2001.

4.Van der Hoek, M. Peter, "Tax Harmonization and Competition in the European Union," ATAX Working Paper, September 2003.

5.Janeba, Eckhard and Schjelerup, Guttorm, "Why Europe Should Love Tax Competition - And the U.S. Even More So," NBER Working Paper No. 9334, November 2002.

6.Kanbur, Ravi and Keen, Michael, "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," The American Economic Review, Vol. 83, No. 4, September 1993, 877-892.

7.Krogstrup, Signe, "Are Corporate Tax Burdens Racing to the Bottom in the European Union?" EPRU Working Paper, February 2004.

8.Krogstrup, Signe, "A Synthesis of Recent Developments in the Theory of Capital Tax Competition," EPRU Working Paper, July 2003.

9.Krogstrup, Signe, "What do Theories of Tax Competition Predict for Capital Taxes in EU Countries? A Review of the Tax Competition Literature," HEI Working Paper No. 05/2002, May 2002.

10.Mitchell, Daniel J., "EU Tax Trap…" The International Economy, Spring 2002.

11.Oates, W.E., Fiscal Federalism, New York: Harcourt Brace Jovanovich, 1972. 130-158.

12.Razin, Assaf and Sadka, Efraim, "International Tax Competition and Gains from Tax Harmonization," NBER Working Paper No. 3152, October 1989.

13.Tsoukalis, Loukas, What Kind of Europe? New York: Oxford University Press, 2003, 95-141.

14.Wilson, John Douglas, "Trade, Capital Mobility, and Tax Competition," The Journal of Political Economy, Vol. 95, No. 4, August 1987, 835-856.

15.Zodrow, G.R. and Mieszowski, P., "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," Journal of Urban Economics, 1986, 356-370. This was an entry for The 2004 Moffatt Prize in Economic Writing. See the contest rules for more information.

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