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Author: Wim Piot, PwC Luxembourg
Economic theory on tax competition and tax harmonisation
Does economic integration, especially in the face of growing mobility of both physical and human capital, require tax harmonisation? Many observers believe it does. It is often argued that the Member States of the European Union must agree on common rates and tax bases if they want to avoid a race to the bottom, implying governments are left with no revenue and ultimately no public goods on offer. The logic seems straightforward: all other things being equal, producers of goods and assets and suppliers of services will move to whichever country has the lowest tax rates and absent any tax coordination, this will lead to a competition that drives tax rates even...
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