英语论文网

nal level.

Sinn’s argument regarding this topic is described following. If the taxation on capital is excessive, it can fly out from one country, but not from all countries. So the tax authorities have an incentive to get additional power if they commit themselves to equally establish their tax rates. By setting the tax rates above the competitive level, the tax authorities can attempt to accumulate additional revenue from capital and mitigate the distributional consequences

τ = constant = (fK –r – ck ?K - c)?Φ - cw?K – ρ

With given t, we have:

Φ τ = constant =

This coefficient is always positive. In other words an improvement in the infrastructure with a given capital tax rate attracts more capital into the country. Sinn conclude that “Tax harmonization intensifies infrastructure competition and leads to an overprovision of the public infrastructure in equilibrium” (2003:45). A policy measure in order to avoid the overprovision of the public infrastructure is to harmonize the supply of these accordingly to the harmonization of the tax rates. However a harmonization of infrastructure expenditures is hard to put in motion due to the different needs of every country and also the different characteristics of each of them.

The framework of tax policy in the EU

The tax systems of EU countries have significant differences, but evolve in a framework of certain common characteristics which determines to some extent the amount of the tax burden. Some common features, such as rules of budgetary discipline in the euro area, the trend of population aging, the substantial amount of public spending in member countries will most likely increase the tax burden. Other features such as orientation of the tax base, tax competition, the widespread demand for simplification and transparency of the tax system and the tendency to use the tax system as an incentive for greater labor supply will possibly lead to the opposite direction.

Fiscal discipline in the Economic & Monetary Union (EMU)

The criteria for convergence in the euro area (Maastricht criteria) and the Stability and Growth Pact have imposed clear rules and timetables discipline within the EU. Therefore the quantitative targets-restrictions towards the reduction of the deficit and debt are translated to constraints on the fiscal policy will be followed by each country. These limitations have clear implications on the tax system and the size of the tax burden in every country member of the EMU.

But considering the current economic situation in the Europe the stability and growth pact has proved to be inadequate in periods of crisis. A new framework for fiscal policy consolidation must be implemented where the changes in corporate tax legislation are of great importance (Bofinger and Ried, 2010)

Moreover, Whitworth et all, (2010) state that fiscal consolidation and a reduction in government debt has become a priority in most of the EU economies and in that direction, a. government cuts spending and b. revenue from taxes are important tools towards the countries effort.

Population aging and pension burden

Ageing in the EU put significant pressures on tax revenues of Member States. The growing and to some extent inelastic pension costs and health care cost set the stage for a major tax burden on labor and c