Why is there so little tax coordination? The role of majority voting and international tax evasion

Clemens Fuest and Bernd Huber

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: It is a striking feature of EU tax policy that countries find it difficult to agree on capital tax coordination. This is in conflict with the prevailing theoretical view, according to which tax coordination is beneficial. This paper develops a political economy argument which may help to explain this puzzle. We consider a model of tax competition where fiscal policy decisions are taken via majority voting and tax evasion is possible but costly. It turns out that tax coordination agreements may fail to generate political support because middle income groups may lose from tax coordination, even if their capital income is below average.

Date: 2001
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Published in Regional Science and Urban Economics 2-3 31(2001): pp. 299-317

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Journal Article: Why is there so little tax coordination? The role of majority voting and international tax evasion (2001)
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