IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
Debates on the future of uropean integration usually centre on "what o do next?" Deepening or widening? Or both. The idea that perhaps we have gone far enough is not often explored. One area where it is almost taken for granted that "Europe must progress" is in taxation. Ever since the publication of the PRIMAROLO report much effort has been expended on emulating the OECD on the need to fight "harmful tax competition".
The result has been an extended battle to harmonize withholding taxes and/or to ensure administrative cooperation between tax authorities, culminating in he adoption of the Savings Directive in 2003. Different tax rates across the European single market are thought to be distorting. They are said to generate inefficient capital and resource flows between member states. In any event, many member states are currently emphasizing decentralisation or devolution as a better and more democratic form of governing their own societies, while at the same time supporting moves towards greater centralisation at the level of the European Union. How much freedom do member states have (or should they have) to "deconcentrate" their own internal domestic tax arrangements? How will greaterlocal tax autonomy at sub-national level impact on the "harmful tax competition" debate? Is the Commission on a collision course with the growing tide of public opinion in favour of more local democracy, especially in fiscal matters? Does institutional competition in fiscal matters lead to a "race to the bottom", as many fear, or to constraints on the growth of government, as many hope? The purpose of our current research on the extent, direction and nature of fiscal decentralisation in different member states of the European Union is to contribute to various aspects of these issues.