EUROPEAN TAX HARMONIZATION AND PRODUCTION EFFICIENCY

This paper analyses the impact on production efficiency of potential h armonisation of the taxation of income from capital in the European Un ion. It develops and applies a methodology for computing the cost of c apital for transnational investments to assess the degree to which pro duction efficiency holds in the EU. It considers the impact of potenti al forms of corporation tax harmonisation. The results indicate that s ome commonly advocated reforms (e.g. harmonising tax rates or tax base s) would not significantly move the tax system towards production effi ciency, but that other reforms which affect the taxation of cross-bord er flows would have more impact.