Part 1 - AL-Tax

Chapter 844%, GDP424038363432Figure 8.11970197119721973Note: GDF-weighted averages for the EU1974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004Total EU-15 (ESA 79) Total EU-15 (ESA 95) Total EU-25 (ESA 95)Total taxes (including social security contributions) as percentage of GDP in the EU.Note the statistical break due to a change in classification at Eurostat. Source: EuropeanCommission (2006a)When we decompose the tax-to-GDP ratios into the three main economic functions,we observe that the recent slight decline in total-tax-to-GDP ratios is largelydue to a decline in the collection of taxes on labor income relative to GDP. Thetrends indicate both a slight decrease in labor taxes collected as a share of GDPand an increase in capital taxes collected as a share of GDP in the EU-15 (seeFigure 8.2). 28.5 Corporate tax competition in the European Union:Theory and empirical evidence8.5.1 Tax competition and the underprovision of public goods‘The result of tax competition may well be a tendency towards less than efficientlevels of output of local services. In attempting to keep taxes low to attract businessinvestment, local officials may hold spending below those levels for whichmarginal benefits equal marginal costs . . .’(Oates, 1972)179