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The Dilemmas of Tax Coordination in the Enlarged European Union

  • Jens Brøchner
  • Jesper Jensen
  • Patrik Svensson
  • Peter Birch Sørensen
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    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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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1859.

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    Date of creation: 2006
    Date of revision:
    Handle: RePEc:ces:ceswps:_1859
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    1. Copenhagen Economics, 2004. "Economic effects of tax cooperation in an enlarged European Union," Taxation Studies 0012, Directorate General Taxation and Customs Union, European Commission.
    2. 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.
    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. Enrique G. Mendoza & Linda L. Tesar, 1995. "Supply-side economics in a global economy," International Finance Discussion Papers 507, Board of Governors of the Federal Reserve System (U.S.).
    5. Peter Birch Sørensen, 2000. "The case for international tax co-ordination reconsidered," Economic Policy, CEPR;CES;MSH, vol. 15(31), pages 429-472, October.
    6. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    7. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies 0005, Directorate General Taxation and Customs Union, European Commission.
    8. Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Sorensen, Peter Birch, 2004. "International tax coordination: regionalism versus globalism," Journal of Public Economics, Elsevier, vol. 88(6), pages 1187-1214, June.
    10. Gaëtan Nicodème, 2006. "Corporate tax competition and coordination in the European Union: What do we know? Where do we stand?," European Economy - Economic Papers 250, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    11. 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.
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