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Tax Competition, Fiscal Policy, and Public Debt Levels in aMonetary Union

Author

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  • Menguy, Séverine

    (Université de Paris)

Abstract

We study the link between tax competition, efficiency of available fiscal bases and public indebtedness levels in the member countries of a monetary union. Theoretically, labor taxation would be the most efficient way to collect fiscal resources, as this production factor is more rigid; so, only initially weakly indebted countries can afford to have weak labor taxation rates. Empirical data also validate the decreasing relation between consumption taxation rates and public debt levels. On the contrary, capital taxation would be less efficient, because of capital mobility. If the capital taxation rate is higher than in the rest of the monetary union, tax evasion could deteriorate the fiscal base and increase the public debt to GDP ratio. So, empirical data show an ambiguous trend between the historical evolution of implicit capital taxation rates and public debt levels in the Euro Area.

Suggested Citation

  • Menguy, Séverine, 2020. "Tax Competition, Fiscal Policy, and Public Debt Levels in aMonetary Union," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 35(3), pages 353-395.
    • Handle: RePEc:ris:integr:0803
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    Keywords

    capital taxation rate; labor taxation rate; consumption taxation rate; public debt; monetary union; tax competition;
    All these keywords.

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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