ABSTRACT
The analysis of tax harmonization is conducted with the usual range of economic criteria in mind, and in particular, its effects on the goals of the union and of its member states with respect to allocative efficiency and distributional equity. One aspect of the latter, in the shape of the inter-country revenue implications of alternative tax harmonization arrangements, may be perceived to constitute a significant source of gain or loss that needs separate consideration. Ultimately, however, since tax adjustments are normally capable of replacing any revenues that may be lost in the process of tax harmonization, it is the welfare losses and gains associated with tax harmonization that are crucial. These cannot be straightforwardly identified with the extent of revenue gains and losses themselves. It remains to emphasize that, as with market integration itself, the potential efficiency gains to a union from fiscal harmonization do not guarantee that each member will gain, in the absence of compensation. It is also true that any income gains secured from tax harmonization may have a perceived cost to member states in the shape of the constraint that harmonization imposes on the use of indirect taxes to pursue objectives of national policy in the fields of distribution or social policy. However, alternative means of achieving such ends will normally be available, and some of those means may not be significantly inferior, on welfare grounds, to the use of taxation. To that extent, any costs to member states on grounds of distributional or social policy considerations may, after policy adjustments, be very limited.
