Is tax competition harmful and is the EU an Optimal Tax Area?, European Journal of Law and Economics 21: 163-177 (2006, in common with N. Kyriazis)

Is tax competition harmful and is the EU an Optimal Tax Area?, European Journal of Law and Economics 21: 163-177 (SCOPUS, EconLit, ISI Listed. Impact factor: 0.653 and 5-year: 0.609). In common with N. Kyriazis (2006).

This paper examines the issue of harmfulness of tax competition commenting on issues like welfare, growth, redistribution, harmonization and individual freedom. A simple game theoretical approach is formulated, where for the first time the two players start from unequal initial conditions, thus influencing strategy and outcomes. Next we propose the new criterion of Optimal Tax Area under which the possibility and feasibility of tax harmonization is examined. The policy implication of our paper is that we do not expect harmonization for direct taxes like corporate taxes in the EU in the near future and if so, harmonization of corporate tax rates on low levels. We conclude that both more theoretic research and empirical evidence are needed before we can answer with certainty whether tax competition is harmful or not.

JEL Classification: A1; D6; H0; State-and-Local-Government; Intergovernmental-Relations-Interjurisdictional-Differentials-and-Their-Effects (H730); Tax-; Taxation-and-Subsidies-Efficiency; Optimal-Taxation (H210)