Part 1 - AL-Tax

Chapter 8prerogatives to the EU. Opponents of increasing the EU’s powers regarding directtaxation have both economic and political arguments why redistribution and stabilization(and the assignment of tax powers to achieve this) should in their viewremain in national hands:1. Some consider that because they are not directly elected (with the exceptionof the European Parliament), EU institutions may lack the democraticlegitimacy – or rather, they claim that whatever legitimacy they do have isindirect at best – that is needed to have tax-raising powers, since someMember States have adopted the motto ‘no taxation without representation’.This argument seems highly debatable since the European Commissionderives its legitimacy from the fact that its members are appointed by democraticallyelected governments and approved by the directly elected membersof the European Parliament. In addition, powers to raise and managetaxes could be vested in the Council or the European Parliament themselves,as is done in any other federation.2. Member States vary widely in the extent of their preference for redistributionpolicies, and citizens may well be much less concerned about the income/poverty levels of those living in other EU Member States than the situationin their home country.3. There is still much more that could be done by national budgetary policiesto achieve stabilization, and there would be considerable problems in designingan effective stabilization fund at EU level, due to the difficulty in identifyingin real time the source, scale, and duration of economic shocks whichcould lead to lags in the disbursement of funds. The economic rationalefor assigning to the EU public policies that need large-scale public expenditurehas been weak for the same reasons: The financing of EU policiescan easily be arranged on an ad hoc basis.4. The scale of cross-border externalities requiring centralized ‘corrective’ taxinterventions may be relatively small, although further economic integrationmay increase the number and amplitude of cases. 1This, however, is not to argue that there is no economic rationale for any EUinvolvement in tax policy matters whatsoever. There may be some cases whensome degree of EU involvement is warranted:1. Increased economic integration and mobility of factors of production maylead to a situation in which, on the one hand, Member States develop‘harmful’ strategies to attract or retain mobile tax bases and, on the other175