Tax Competition, Fiscal Policy, and Public Debt Levels in aMonetary Union

Séverine Menguy ()
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Séverine Menguy: Université de Paris, Postal: Sorbonne Paris Cité, 12 rue de l’école de médecine, 75270 PARIS CEDEX, 06, France

Journal of Economic Integration, 2020, vol. 35, issue 3, 353-395

Abstract: We study the link between tax competition, efficiency of available fiscal bases and public indebtedness levels in the member countries of a monetary union. Theoretically, labor taxation would be the most efficient way to collect fiscal resources, as this production factor is more rigid; so, only initially weakly indebted countries can afford to have weak labor taxation rates. Empirical data also validate the decreasing relation between consumption taxation rates and public debt levels. On the contrary, capital taxation would be less efficient, because of capital mobility. If the capital taxation rate is higher than in the rest of the monetary union, tax evasion could deteriorate the fiscal base and increase the public debt to GDP ratio. So, empirical data show an ambiguous trend between the historical evolution of implicit capital taxation rates and public debt levels in the Euro Area.

Keywords: capital taxation rate; labor taxation rate; consumption taxation rate; public debt; monetary union; tax competition (search for similar items in EconPapers)
JEL-codes: F45 H63 H73 H87 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0803

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