A Public Choice Perspective
Edited by Giuseppe Eusepi and Friedrich Schneider
Chapter 3: Tax harmonization-tax competition once again: who gives the EU orchestra the A?
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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