TAX COMPETITION AND INVESTMENT IN THE EMU: The Case of the Cash Flow Income Tax in Greece

This paper addresses the issue of the urgent need for the capital income tax restructuring in Greece in order the country to meet its recent exposure to the EMU tax competition (as accentuated by the economic globalization). The unsuccessful income tax harmonization in the European Union (EU) has intensified tax competition among the member countries, entailing reduction of effective tax rates. Such a tax competition is an inescapable policy for the countries adhered to the basic structure of income tax as internationally applied. However, this is quite painful for countries of high taxation and public debt, like Greece. On the other hand, the fundamental restructuring of the Greek income tax towards the Cash Flaw Income Tax, effected on the basis of equal revenue yield, seems to offer the country the necessary tax competitive advantage against the competitors in the EMU. Under such restructuring, the domestic or imported income and profits invested in Greece will be dispensed with the indigenous equity and efficiency deficiencies of the current tax system (since they will be relieved of any tax burden), thus making the economy attractive of funds on a tax induced basis (without discriminating between current and future consumption). To this end, the paper examines the relative merits of such a policy in the domestic and international setting of Greece, purporting to constitute a starting point for a thorough examination in this respect.