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The Dynamics of Fiscal Federalism


Abstract : Just as it would be misleading to say that western economies are freemarket economies, it would be far from the truth to say that this region of the world is one in which intense tax competition is taking place. This state of affairs mirrors the opinion prevailing among national as well as European governments and representatives according to which tax competition can be harmful and therefore must be cautiously controlled.

In this respect, the parallel between the development of tax laws and the development of competition laws is a striking one: in both cases regulators and legislators (public decision makers) share the twin believes that (i) even in a context of rule of law (therefore, even when contract, tort and property laws are well established and enforced), the outcome of competition can be harmful to society and (ii) a proper regulation can lead to a preferredglobal outcome.

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