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Journal of Economic Integration 2020 September;35(3) :353-395.
DOI: https://doi.org/10.11130/jei.2020.35.3.353
Tax Competition, Fiscal Policy, and Public Debt Levels in a Monetary Union
Séverine Menguy 
Université de Paris, France
Corresponding Author: Séverine Menguy ,Email: severine.menguy@orange.fr
Copyright ©2020 Journal of Economic Integration
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.

JEL Classification
F45: Macroeconomic Issues of Monetary Unions
H63: Debt; Debt Management; Sovereign Debt
H73: Interjurisdictional Differentials and Their Effects
H87: International Fiscal Issues; International Public Goods
Keywords: capital taxation rate | labor taxation rate | consumption taxation rate | public debt | monetary union | tax competition
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