Transcript Tax Harmonization

50 years of corporate tax
harmonization initiatives in the
EU: Is Enhanced Cooperation the
solution?
Hendrik Vrijburg
Erasmus University Rotterdam
Tax harmonization
Tax Harmonization
ECA: Arguments
ECA:Conclusion
• History on corp. tax harmonization is long
– Neumark (1962) – Bolkestein (2001)
– but unsuccessful in general
– today: Common Consolidated Corporate Tax Base (CCCTB)
• … welfare effects are ambiguous theoretically
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Internalized tax spillovers (+)
Improved allocation of resources (+)
Reduced compliance costs (+)
Lack of government disciplining (-)
Uniform policy imposed on heterogeneous preferences (-)
• … and asymmetric across countries
Tax harmonization
Tax Harmonization
ECA: Arguments
ECA:Conclusion
• Welfare gain in detailed simulation studies:
– Max 0.20% of GDP for full harmonization
– Max 0.12% of GDP for only base harmonization with CCCTB
– Only improved allocation of economic resources!
• Proposition 1:
“The gains from corporate tax harmonization are small
and asymmetrically distributed across countries.
Therefore, a grand coalition of all countries might not be
in the interest of all potential members and smaller
coalitions will arise.”
ECA: Arguments
Tax Harmonization
ECA: Arguments
ECA:Conclusion
• Enhanced Cooperation Agreement (ECA)
• Amsterdam (1997) and Nice (2003)
• Details:
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Subset of countries harmonize policies
Mechanism of last resort
Minimum of 8 countries
Always open to participation of outsiders
Only ECA members decide on policies
Policies should not oppose the interests of the EU
ECA: Arguments
Tax Harmonization
ECA: Arguments
ECA:Conclusion
• General Arguments
– same as under full harmonization
• Theoretically welfare improving:
– if interests of the insiders are aligned with the
interests of the outsiders
– as a pilot group from which outsiders can learn
• But..
– Welfare gains ECA even smaller: Max 0.05% of GDP
– Gains from cooperation are “exported”
– And highly uncertain given missing arguments
ECA: Conclusion
Tax Harmonization
ECA: Arguments
ECA:Conclusion
• But we must be careful
– Self selection into coalitions
– Strategic choice of common policy
– New vested interests are created!
• Proposition 2:
“Allowing enhanced cooperation between a subset of
countries in the EU is a dangerous policy direction which
yields only a modest welfare gain compared to a grand
coalition.”
Propositions
– Proposition 1:
“The gains from corporate tax harmonization are small and
asymmetrically distributed across countries. Therefore, a grand
coalition of all countries might not be in the interest of all potential
members and smaller coalitions will arise.”
– Proposition 2:
“Allowing enhanced cooperation between a subset of countries of
countries in the EU is a dangerous policy direction which yields
only a modest welfare gain compared to a grand coalition.”