Changing Institutions in the European Union
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Changing Institutions in the European Union

A Public Choice Perspective

Edited by Giuseppe Eusepi and Friedrich Schneider

This book makes a valuable, analytical contribution to recent debates on the ongoing institutional changes occurring within the European Union. It provides a comprehensive and diverse insight into a variety of areas, including in-depth studies of fiscal, monetary and voting issues, to help elucidate the current period of transitional change.
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Chapter 3: Tax harmonization-tax competition once again: who gives the EU orchestra the A?

Giuseppe Eusepi


3. Tax harmonization–tax competition once again: who gives the EU orchestra the A? Giuseppe Eusepi* 1. INTRODUCTION The introduction of a European fiscal constitution into the more general EU institutional design has spawned speculations on its potential impact. This chapter captures these speculations at the crossroads between fiscal harmonization and fiscal competition and addresses the impact of these two different approaches on the type of EU that will emerge. Therein lies the complex question of whether the EU will be reproducing the welfare states of the member countries on a larger scale, or rather the EU prefigured by the theorists of fiscal constitutionalism. With fiscal harmonization the EU is apt to face an ever-increasing fisc and a market in retreat. Conversely, fiscal competition is likely to lead eventually to an EU with a fisc in retreat and an ever-increasing market. Much of the extant discussion on this issue hopelessly muddles the two alternatives, so it is important to seek grounding in the schools of thought to which they belong: the tax harmonization approach is firmly fixed in the welfare economics philosophy, while the tax competition approach reflects the constitutional political economy philosophy. The former approach – henceforth orthodox approach (OA) – leads to fiscal centralization, the latter – henceforth constitutional approach (CA) – leads to fiscal competition and to the related efficiency and efficacy in production. Despite their opposite outcomes, the two approaches might be deemed to have a common origin in the Tiebout–Olson model. The reason...

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