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N° 1999 - 02 |
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| March |
| Labour Market & Tax Policy in the EMU |
French-German Economic Forum
Third meeting |
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The discussion was based on
two presentations: EMU and the Labour Market - A Speculative Assessment, by Karl-Heinz
Paqué and Otto von Guericke; Tax Competition in the European Monetary Union:
Present and Prospects, by Jacques LE CACHEUX .
EMU and the Labour Market - A Speculative Assessment
The transition from the European Monetary System (EMS) to the European Monetary Union (EMU) is a big historical event. For economists, big historical events are extremely hard to assess. This is so for two reasons: First, big historical events are rare, and rare events have few if any precedents that could be used as empirical standards of comparison to make reasonably accurate predictions about the likely effects and consequences of the historical change under consideration. Second, big historical events are revolutionary in the sense that they may change many fundamentals of life so that it becomes difficult to set up a counterfactual scenario which can serve as a reasonable yardstick for history's 'normal' path. Hence much of what an economist can say about big historical events is a theoretically based and empirically enriched speculation. This is how this (non-technical) paper should be understood.
Speculations on EMU and the labour market are organized into three parts. In Part 1, is summarised the mainstream view of what challenges there are for European labour markets, independent of whether we will live in an EMS- or an EMU-environment. The author argues that these are major challenges of real wage flexibility that call for reforms of the welfare state and of national labour market institutions. In Part 2, he asks what the transition from EMS to EMU, i.e. from a system of fixed, but occasionally adjustable parities to a common currency adds to this agenda. In Part 3, is presented a prototype labour market reform agenda for a continental European country that is a member of EMU.
Tax Competition in the European Monetary Union: Present and Prospect
Tax competition arises as soon as economic and financial openness is sufficient for tax bases to migrate across jurisdictional boundaries. Whereas the completion of the Single European Market had raised fears that it may lead to enhanced tax competition amongst national governments of member states, the evidence suggests that it has been limited to some aspects of national taxation, such as taxes on income and capital gains from individuals' financial asset holdings. However, with the full monetary integration in the European Union, it is likely that competition will strengthen, which may lead to more severe tax competition, in particular on business taxation in order to attract firms or provide existing ones with a competitive advantage.
Microeconomic analyses of tax competition amongst local governments within federations or unitary states tend to conclude that such a competition is inefficient, leading to under-provision of local public goods; it also reduces the returns to immobile factors and increases tax pressure on such factors. In strategic settings, it may be shown to induce waste of public resources and windfall gains on newly installed firms.
Given relative degrees of mobility, the instruments of tax competition in Europe are essentially taxes on incomes from capital, at the firm's and at the owner's levels, as well as possibly taxes that bear on firms' production costs. Although the evidence is not conclusive, there seems to be a potential for that competition to attract businesses if they become more mobile within the EU economy.
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Abstract |
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| Labour market, Monetary integration, Tax
competition, EMU |
Keywords |
| J3, H3, E6 |
JEL classification |
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Full text (pdf) |
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