Tax Harmonisation: Does the Unanimity Rule Play a Role?
In this paper, we analyse tax harmonisation in the framework of two asymmetric countries, differing with respect to their capital-labour endowments. In the first part, we analyse how national fiscal policies are decided when countries play a non-cooperative game. At the Nash equilibrium, inefficiency arises because of the corresponding misallocation of resources. Some forms of fiscal policy co-ordination are then studied within the institutional framework of the European Community, where such policy reforms are decided by the unanimity rule. We show that, while the imposition of a minimum level of capital taxation cannot pass, there exist some forms of tax convergence that can be accepted.