Disputes about the tax harmonization and the tax competition in the European Union

The interdependence between countries and the importance of the economic links between them has reached an extend unprecedented in history. In the context of globalization, the mobility of production factors may get pressure on governments to reduce taxes in order to remain attractive. Reduction of tax rates in most Members of the European Union over the past few years seems to support the hypothesis that countries compete. Fiscal policy remains one of the few tools at the disposal of national governments in their effort to influence their own economies. To keep their economies attractive many of the new members have responded by cutting tax rates. West Europeans fear that low tax rates in the new member states will attract companies, taking jobs and investment with them. These countries proposed a tax harmonization, especially a corporate tax systems harmonization.