BREMEN Tax competition tax harmonization and tax innovation

BREMEN Tax competition, tax harmonization and tax innovation Presentation for the workshop on ‚Policy learning and experimentation in EU economic governance: Laboratory federalism in practice? ‘ London, 30 -31 March 2006 Philipp Genschel 1

1. Market integration v. policy experimentation – a trade-off Internal Market • An ‚area without internal frontiers in which the free movement off goods, persons, services and capital is ensured …’ (Art. 14 EC Treaty) • Basic requirement: elimination of internal frontiers Laboratory federalism • A multilevel governance system which ‘ … contains the risks of policy experiments to a smaller part of the polity …’ (Conference Program) • Basic requirement: keeping up of internal frontiers 2

2. The EU tax policy regime focuses on market integration All policy instruments are geared towards the elimination of tax barriers and distortions in the Internal Market • Tax harmonization • Competition policy • Tax jurisprudence • Soft coordination 3

3. The EU tax policy regime constrains national policy experimentation – empirical illustrations Tax harmonization • Taxation of labour-intensive services • Reverse-charge system • IRAP Tax competition • Expenditure taxation • Corporate-personal tax integration 4

4. The costs of market integration – two perspectives Traditional perspective: • Loss of capacity for democratic selfgovernment and problem solving at the national level Dynamic perspective: • Undersupply of policy variation and learning opportunities at the European level 5

5. Objections? • Room for national tax policy experimentation is reduced but not eliminated in the EU Internal Market. • Freedom for policy experimentation may be abused for protectionist purposes. • Less policy experimentation in the public sector may lead to more business experimentation in the private sector. 6