Tax harmonisation and political competition

In this paper, we analyse tax harmonisation in the framework of two countries asymmetric in their capital-labour endowment. In the first part, countries play a non-cooperative game and we examine how na- tional fiscal policies are decided according to majority voting. At the Nash equilibrium, inefficiency arises because of the corresponding mis- allocation of resources. In the second part, we analyse fiscal policy co- ordination within the institutional framework of the European Union, where policy reforms are decided by unanimity rule. In most cases, we show that the imposition of a minimum capital tax rate is refused.