Hendrik Vrijburg Erasmus University Rotterdam

1. 50 years of corporate tax harmonization initiatives in the EU: Is Enhanced Cooperation the solution? Hendrik Vrijburg Erasmus University Rotterdam

2. Tax harmonization History on corp. tax harmonization is long Neumark (1962) – Bolkestein (2001) but unsuccessful in general today: Common Consolidated Corporate Tax Base (CCCTB) … welfare effects are ambiguous theoretically Internalized tax spillovers (+) Improved allocation of resources (+) Reduced compliance costs (+) Lack of government disciplining (-) Uniform policy imposed on heterogeneous preferences (-) … and asymmetric across countries Tax Harmonization ECA: Arguments ECA:Conclusion

3. Tax harmonization Welfare gain in detailed simulation studies: Max 0.20% of GDP for full harmonization Max 0.12% of GDP for only base harmonization with CCCTB Only improved allocation of economic resources! Proposition 1: “The gains from corporate tax harmonization are small and asymmetrically distributed across countries. Therefore, a grand coalition of all countries might not be in the interest of all potential members and smaller coalitions will arise.” Tax Harmonization ECA: Arguments ECA:Conclusion

4. ECA: Arguments Enhanced Cooperation Agreement (ECA) Amsterdam (1997) and Nice (2003) Details: Subset of countries harmonize policies Mechanism of last resort Minimum of 8 countries Always open to participation of outsiders Only ECA members decide on policies Policies should not oppose the interests of the EU Tax Harmonization ECA: Arguments ECA:Conclusion

5. ECA: Arguments General Arguments same as under full harmonization Theoretically welfare improving: if interests of the insiders are aligned with the interests of the outsiders as a pilot group from which outsiders can learn But.. Welfare gains ECA even smaller: Max 0.05% of GDP Gains from cooperation are “exported” And highly uncertain given missing arguments Tax Harmonization ECA: Arguments ECA:Conclusion

6. ECA: Conclusion But we must be careful Self selection into coalitions Strategic choice of common policy New vested interests are created! Proposition 2: “Allowing enhanced cooperation between a subset of countries in the EU is a dangerous policy direction which yields only a modest welfare gain compared to a grand coalition.” Tax Harmonization ECA: Arguments ECA:Conclusion

7. Propositions Proposition 1: “The gains from corporate tax harmonization are small and asymmetrically distributed across countries. Therefore, a grand coalition of all countries might not be in the interest of all potential members and smaller coalitions will arise.” Proposition 2: “Allowing enhanced cooperation between a subset of countries of countries in the EU is a dangerous policy direction which yields only a modest welfare gain compared to a grand coalition.”