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The Dilemmas of Tax Coordination in the Enlarged European Union

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  • Jens Brøchner
  • Jesper Jensen
  • Patrik Svensson
  • Peter Birch Sørensen
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    Abstract

    This study evaluates the economic effects of corporate tax coordination in the enlarged European Union using a computable general equilibrium model and a comprehensive set of scenarios for both a common corporate EU tax base and for full harmonisation of tax bases and tax rates. Our main findings are as follows: (i) Corporate tax coordination can yield modest aggregate welfare gains, but the details of the coordination policies determine outcomes and economic gains cannot be taken for granted. (ii) All scenarios for coordination leave some EU Member States as winners and others as losers. An agreement on tax coordination is therefore likely to require elaborate compensation mechanisms. (iii) The large and diverse country effects suggest that Enhanced Cooperation for a subset of the Member States may be the most likely route towards tax coordination. Coordination among a subset of relatively homogenous Member States will lead to less radical policy changes, but also to smaller gains. (iv) Identifying winners and losers from coordination for the purpose of a compensation mechanism may be problematic, since countries experiencing gains in GDP and welfare tend to lose tax revenues, and vice versa.

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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1859.

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    Date of creation: 2006
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    Handle: RePEc:ces:ceswps:_1859

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    1. Enrique G. Mendoza & Linda L. Tesar, 1995. "Supply-side economics in a global economy," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 507, Board of Governors of the Federal Reserve System (U.S.).
    2. Mendoza, Enrique G & Tesar, Linda L, 1998. "The International Ramifications of Tax Reforms: Supply-Side Economics in a Global Economy," American Economic Review, American Economic Association, vol. 88(1), pages 226-45, March.
    3. Nicodeme, Gaetan, 2006. "Corporate Tax Competition and Coordination in the European Union: What do we know? Where do we stand?," MPRA Paper 107, University Library of Munich, Germany.
    4. Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 125, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Peter Birch Sørensen, 2000. "The case for international tax co-ordination reconsidered," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(31), pages 429-472, October.
    6. Sorensen, Peter Birch, 2004. "International tax coordination: regionalism versus globalism," Journal of Public Economics, Elsevier, vol. 88(6), pages 1187-1214, June.
    7. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    8. Gaëtan Nicodème, 2006. "Corporate tax competition and coordination in the European Union: What do we know? Where do we stand?," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 250, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    9. Copenhagen Economics, 2004. "Economic effects of tax cooperation in an enlarged European Union," Taxation Studies, Directorate General Taxation and Customs Union, European Commission 0012, Directorate General Taxation and Customs Union, European Commission.
    10. Mendoza, Enrique G. & Tesar, Linda L., 2005. "Why hasn't tax competition triggered a race to the bottom? Some quantitative lessons from the EU," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 163-204, January.
    11. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies, Directorate General Taxation and Customs Union, European Commission 0005, Directorate General Taxation and Customs Union, European Commission.
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    Cited by:
    1. Hendrik Vrijburg & Ruud A. de Mooij, 2010. "Enhanced Cooperation in an Asymmetric Model of Tax Competition," Tinbergen Institute Discussion Papers 10-011/3, Tinbergen Institute.
    2. Leon Bettendorf & Albert van der Horst & Ruud A. de Mooij & Hendrik Vrijburg, 2010. "Corporate tax consolidation and enhanced coorporation in the European Union," Working Papers, Oxford University Centre for Business Taxation 1001, Oxford University Centre for Business Taxation.
    3. Marcin Piatkowski & Mariusz Jarmuzek, 2008. "Zero Corporate Income Tax in Moldova," IMF Working Papers 08/203, International Monetary Fund.
    4. Hikaru Ogawa & David E. Wildasin, 2009. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," American Economic Review, American Economic Association, vol. 99(4), pages 1206-17, September.
    5. Christos Kotsogiannis & Robert Schwager, 2006. "Fiscal Equalization and Yardstick Competition," CESifo Working Paper Series 1865, CESifo Group Munich.
    6. Sergii Slukhai, 2009. "Inter-Location Small Business Tax Rate Variation in Ukraine: What Is Behind It?," Financial Theory and Practice, Institute of Public Finance, Institute of Public Finance, vol. 33(1), pages 49-71.
    7. David Wildasin, 2007. "Pre-Emption: Federal Statutory Intervention in State Taxation," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2007-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.

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