Institutional Competition

Institutional Competition

New Thinking in Political Economy series

Edited by Andreas Bergh and Rolf Höijer

Why is competition between institutions usually viewed in a negative light, when competition is considered positive in most other economic contexts? The contributors to this volume introduce new perspectives on this issue, analytically and empirically exploring reasons for this perception.

Chapter 6: Tax Competition and Tax Cartels

Rolf Höijer

Subjects: economics and finance, austrian economics, institutional economics

Extract

Rolf Höijer INTRODUCTION Those who fear tax competition usually argue that some measures of tax harmonization must be employed to limit the extent of tax competition. To mention some examples the French President Jacques Chirac argued that ‘[we need] genuine fiscal harmonisation in Europe . . .’1 Similarly EU Trade Commissioner Pascal Lamy argued that ‘A natural first step would be to harmonise the tax bases and to adopt minimum tax rates but the ultimate goal should be the creation of a European Corporate income tax.’2 Policy measures have also been introduced. At a meeting in Verona in 1996 the ECOFIN also introduced a reflection document, which broadened the discussion of ‘harmful tax competition’ and placed it at the heart of the EU agenda.3 This resulted in an EU tax agreement in 1997.4 Within the European Union VAT has also been harmonized, (as have a few other taxes). In May 1996 the OECD also ordered a report with recommendations to be drafted, which resulted in the OECD’s famous 1998 report on ‘Harmful Tax Competition’, and subsequent OECD work to inhibit the activities of ‘tax havens’ and so on.5 As these examples show tax harmonization is often suggested as a remedy to tax competition. This chapter aims briefly to discuss some of the possible dangers and benefits of tax harmonization that are seldom discussed otherwise. Section 6.2 will consider tax harmonization as an attempt to limit competition and also discuss which market failures are usually used to justify replacing...

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