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Fiscal Harmonization: Credible Goal or Trojan Horse?

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  • Enrico Colombatto

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    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

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    Abstract

    The supply-side literature underscores two main concepts. Taxation usually harms growth and fiscal competition provides effective protection against excessive fiscal pressure. Understandably, governments tend to dislike fiscal competition, and strive to create fiscal cartels justified by the general principle of fiscal harmonization. This paper argues that, from the policymakers’ standpoint, fiscal harmonization is inferior to automatic exchange of information among fiscal authorities and also to schemes of anonymous withholding taxes. By contrast, fiscal harmonization could be a useful instrument that international bureaucrats resort to in order to obtain fiscal centralization. We conclude that their chances to succeed largely depend on the rent-seeking strategies pursued by the national decision-makers and on the perceived legitimacy of the federal authorities.

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    File URL: http://eco83.econ.unito.it/RePEc/wp/m10.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino in its series Working papers with number 010.

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    Length: 28 pages
    Date of creation: Jul 2012
    Date of revision:
    Handle: RePEc:tur:wpapnw:010

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    Keywords: Laffer curve; taxation; fiscal harmonization; legitimacy; consensus; rent-seeking;

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    1. Aleksandra Riedl & Silvia Rocha-Akis, 2012. "How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 632-671, May.
    2. Torgler, Benno & Schneider, Friedrich, 2006. "What Shapes Attitudes Toward Paying Taxes? Evidence from Multicultural European Countries," IZA Discussion Papers 2117, Institute for the Study of Labor (IZA).
    3. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 147-74, Fall.
    4. Edgar L. Feige & Robert T. McGee, 2005. "Sweden'S Laffer Curve: Taxation And The Unobserved Economy," Macroeconomics 0501023, EconWPA.
    5. Hannes Winner, 2005. "Has Tax Competition Emerged in OECD Countries? Evidence from Panel Data," International Tax and Public Finance, Springer, vol. 12(5), pages 667-687, September.
    6. Bergh, Andreas & Henrekson, Magnus, 2011. "Government Size and Growth: A Survey and Interpretation of the Evidence," Working Paper Series 858, Research Institute of Industrial Economics.
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