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Fiscal harmonization in the European Union with public inputs

  • Fernández-de-Córdoba, Gonzalo
  • Torres, José L.

Fiscal harmonization among the European Union member states is a goal involving major difficulties for its implementation. Each country faces a particular trade-off between fiscal revenues generated by taxation and the productive efficiency loss induced by their respective tax code. This paper provides a quantitative analysis of these trade-offs for a number of the European Union (EU-15) member states using a dynamic general equilibrium model with public inputs. Calibration of the model for the EU-15 member states provides the following results: i) the maximum tax revenue level is relatively far from the current tax levels for most countries; ii) the cases of Sweden, Denmark and Finland are anomalous, as productive efficiency can be gained by lowering tax rates without affecting fiscal revenues; iii) in general, countries would obtain efficiency gains without changing fiscal revenues by reducing the capital tax and increasing the labor tax; and iv) capital tax harmonization to the average capital tax rate can be done with quite small changes in both fiscal revenues and output for most countries.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 5 ()
Pages: 2024-2034

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Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:2024-2034
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