Tax systems and tax reforms in Europe: Rationale and open issue for more radical reforms

Are these really the most suitable fiscal reforms for the fundamental, present needs of
European Countries? My answer is quite negative. The most authoritative views, including
the main International organizations (e.g. EU Commission 2000; Joumard 2001) stress the ur-
gent need to make taxation more supply-friendly, by taking off labor and productive capital to
some extent. The burden should be shifted on consumption, immovable properties and envi-
ronment externalities whereas heavy losses on revenues from capital incomes should be
avoided. The basic features of main national taxes should be brought closer, to make the
overall “European” tax system more neutral and efficient. The working of the single market
would be thus improved.

These suggestions are sure enough well founded on qualitative grounds, but the true ques-
tion simply and suddenly arises: how much and how far? Such question comes from three
current key factors which heavily impinge on European tax systems and any future changes
hoped for:

(i) several years of tax competition and harmonization efforts have failed up to now to set
out a basic common framework for an “European” tax system. We mean a system suitable for
the mixed “Confederation”-to-“Federation” to-day EU institutional setting, and really ena-
bling a mobility of people, goods and capitals, within the single market and free from fiscal
distortions;

(ii) the European economy’s growth rate decrease seems at this point almost endless.
Prospects for future recovery are continuously postponed. The outlook of economic decline
cannot be excluded, even amongst the more established countries. Could fiscal reforms really
contribute to enhancing economic growth? Furthermore, how should the tax system be shaped
in order to keep up the level of welfare of the Pigouvian “national dividend,” by matching the
decreasing growth rate with increased levels of fairness?

(iii) the rebuilding of the European institutional setting is just starting out. Common his-
torical heritage of the Federal States leads to predict profound changes in allocation of gov-
ernment tiers’ taxing and spending powers. Constitutional guarantees for the satisfaction of a
basic level of social protection is likely to be strengthened.

The next three paragraphs of the paper are devoted to opening an intuitive discussion of
how tax reforms should be shaped in order to be consistent with the environment just de-
picted. I am well aware that my remarks frequently may appear somewhat general and vague.
I look at this as the due price required to afford and not to evade the largest and fundamental

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