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Tax Competition in the European Union – Evidence from Panel Data

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  • E62 - Fiscal Policy


After the last EU enlargement the problem of tax competition is more complex and this article tries to reflect the amplitude of this phenomenon. Some factors have a positive influence of tax competition and one of this is capital mobility, but others have a negative impact like public debt or budget deficit. Using a panel data for EU countries, analyzed on 1995-2004, we find significant correlations between the implicit tax rate of business income and corporation profits and the budget deficit, public debt, GDP per capita and the degree of openness of countries, the last variable is used as a proxy for capital mobility. The tax competition is specific only for direct taxation and for this reason we choose as dependent variables an indicator which is reflecting the effective tax burden on business income and corporations profits - the implicit tax rate of business income and corporations profits. The main conclusion is that every EU member states have a different degree of tax competition and this degree is limited by the EU requires concerning the budget deficit which have not exceed 3% of GDP and 60% for public debt.

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