Deadlocked European tax policy. Which way out of the competition for the lowest taxes?

Tax competition in the EU has been a stumbling block since the beginning of the European integration process. The importance of the issue has grown with every round of EU enlargement. Today, 27 member states regard each other as in competition for investment and revenues -- a competitive tax policy is a potent instrument in this contest. However, the motivations behind tax competitiveness vary significantly among the countries, and so do the effects of this race towards the lowest tax rates. In many countries tax competition has drastic effects on tax structure. In recent years tax rates have been cut significantly, fostering the trend to broaden tax bases. The result is a shift of the tax burden from capital and high incomes to consumption and regular wages. Besides these distributional effects, the diversity of national tax practices causes inefficiencies in the allocation of economic resources. Consequently, national economies suffer serious distortions under the conditions of uncoordinated tax competition between states. There is, however, no consensus among member states on a common European tax regime, which would -- in the end -- allow for more national tax autonomy by taming the competitive pressure of "beggar thy neighbor" policies. This analysis of the deadlocked tax debate takes a closer look at the structural factors determining recalcitrant national interests, focusing on the specific structure of tax systems and welfare states. A number of factors play an important role in the positioning of national actors, such as size of country, the degree of capital intensity in an economy, and tax competition's role as a discursive instrument in the catch-up logic of economic growth. Patterns of behavior are identified and outlined in a map of interests. The deadlock in European tax policy could be gradually solved by a number of pragmatic steps towards further cooperation in tax matters. This could finally lead to harmonized taxation, including a minimum tax for the EU, so setting a limit on harmful tax competition. Adapted from the source document.