Corporate Tax Competition and its Potential Implication for Tax Policies in EU Countries

The paper deals with the problem of tax competition in the EU and its possible effect on tax policies. It includes a review of selected theoretical assumptions as well as an empirical analysis of available data. We focus our attention on corporate taxes, because of higher tax base mobility and the lack of almost any tax harmonization up to now. However, corporate tax harmonization is currently being intensively discussed question in EU. The time series analyses, as well as panel data regression, were used. On one hand, the results suggest that there is no evidence for spontaneous tax coordination caused by tax competition across all EU countries. On the other hand, we find evidence for interactions in the setting of corporate tax rates between neighbouring countries. A higher corporate tax rate in neighbouring countries generally implies a higher tax rate in the country itself. Our results also suggest that the level of corporate tax rate in the country could be also partly influenced by the openness of the economy, public debt, GDP per capita, public expenditures and level of corruption in the country.