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Is tax competition harmful and is the EU an optimal tax area?

European Journal of Law and Economics volume 21, pages 163–177 (2006)Cite this article

Abstract

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 ap proach 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.

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Authors and Affiliations

  1. Department of Economics, University of Thessaly Alexandroupoleos 31, Ano Melissia, 15127, Athens, Greece

    George E. Halkos & Nickolas C. Kyriazis

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  1. George E. Halkos
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  2. Nickolas C. Kyriazis
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Correspondence to George E. Halkos.

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classification A1 . D6 . H0

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Halkos, G.E., Kyriazis, N.C. Is tax competition harmful and is the EU an optimal tax area?. Eur J Law Econ 21, 163–177 (2006). https://doi.org/10.1007/s10657-006-6648-z

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  • DOI: https://doi.org/10.1007/s10657-006-6648-z

  • Tax competition
  • Harmonization
  • Welfare