Affordable Access

Can Tax Competition Lead to a Race to the Bottom in Europe? A Skeptical View

Authors
Disciplines
  • Economics
  • Mathematics
  • Political Science

Abstract

This paper addresses the question of the likelihood of a race to the bottom in a monetary union, like the Euro-zone, that could result from tax competition between countries. This fear of a race to the bottom is used both in the economic literature and the political arena to promote tax harmonization. Using a game theoretical approach with the costs of changing tax policies to analyze the conditions of a race to the bottom, this paper shows that countries may not choose such an extreme strategy. In other words, the extreme case scenario of a race to the bottom is unlikely, and proponents of tax harmonization should base their reasoning upon other assumptions.

There are no comments yet on this publication. Be the first to share your thoughts.