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EU tax competition and tax avoidance: A multiprincipal perspective

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  • Florence TOUYA

Abstract

Taxation is the cornerstone of intergovernmental fiscal relations and is especially at stake when authorities address mobile tax bases. The EU case is particularly interesting to tackle. Evidences prove the existence of important tax interactions among member states and both theoretical and empirical analysis shed light on the different mechanisms at work. Likewise, the improved knowledge relative to tax avoidance strengthens the need to take into account this kind of phenomenom. In this paper we propose to compare various alternative settings to the current system so as to be able to estimate the relevance of granting EU the power to tax and in which way. In order to adopt a general and comprehensive framework, we introduce information asymmetries and examine different kinds of governments' objective function. We show that the best outcome would be reach if the EU tier only were allocated the power to tax firms' profits but also prove that, in a context of national governments acting in a competitive way aimed at attracting firms, conferring the EU layer the capacity to apply a tax on a base alreeady subject to member states' taxation could improve the current issue.

Suggested Citation

  • Florence TOUYA, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers 2015-2016_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
  • Handle: RePEc:tac:wpaper:2015-2016_11
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    Keywords

    Vertical and horizontal tax externalities; Information asymmetry; Tax competition; EU taxation; Governments' objective function;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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