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CIAO DATE: 4/5/2007
Taxation and Democracy in the EU
Steffen Ganghof, Philipp Genschel
February 2007
Abstract
Is corporate tax competition a threat to democracy in the EU? The answer depends crucially on a positive analysis of the effects of tax competition on national policy autonomy. Most analyses focus on direct effects on corporate tax rates and revenues. We contend that this focus is too narrow. It overlooks the fact that corporate tax competition also has important indirect effects on the progressivity and revenue-raising potential of personal income taxation. We elaborate on these indirect effects theoretically and empirically, and explore the implications for the normative debate on the EU’s democratic defi cit. Our fi ndings show that European integration can constrain national redistribution in a major way: the democratic defi cit is real. Greater political contestation over the EU’s policy agenda is desirable in order to mitigate this deficit.
