In this paper we show the importance of cost asymmetry and demand curvature in the effect of a uniform output subsidy policy in an economic union. We consider an economic union formed by two countries each with a single firm producing a homogeneous good. We find that when firms have different...

Fiscal harmonization for the European Union member states is a goal that encounters major difficulties for its implementation. Each country faces a particular trade-off between fiscal revenues generated by taxation and the productive efficiency loss induced by their respective tax code....