Tax evasion, fiscal competition and economic integration

Helmuth Cremer, Firouz Gahvari

Research output: Contribution to journalArticlepeer-review

Abstract

This paper examines the implications of tax evasion for fiscal competition and tax harmonization policies in an economic union. First, for symmetric countries, it proves that the equilibrium values of the tax and audit rates are less than optimal. Tax harmonization alone will also lead to a less than optimal audit rate. Second, for asymmetric countries, the paper shows that integration may turn an honest country into an evading one. It argues that tax harmonization alone may be a bad policy in that it can make both countries worse off. It may also cause an otherwise honest country to turn to evasion. (C) 2000 Elsevier Science B.V. All rights reserved.

Original languageEnglish (US)
Pages (from-to)1633-1657
Number of pages25
JournalEuropean Economic Review
Volume44
Issue number9
DOIs
StatePublished - 2000

Keywords

  • Economic integration
  • Fiscal competition
  • Tax evasion
  • Tax harmonization

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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