TAX AUTHORITY TO THE EUROPEAN PARLIAMENT

In this paper we analyze whether countries of the EC community should plead for a decentralized system to finance the European funds rather than using a uniform tax imposed by the European parliament. The analy sis is within a multistage game-theoretic framework in which the impli cation of the financing system of a confederation on the investment be havior in the respective states is considered. The paper is in the tra dition of the literature which claims that from a view of global effic iency property-rights structures inducing ex-post efficient allocation s may be worse than a system leading to an ex-post inefficient allocat ion. For this specific economic issue we elucidate the tradeoff betwee n incentive effect and distributional policy. Especially we demonstrat e that rather homogeneous countries benefit by installing a central ta x institution. If the countries are rather heterogeneous, the countrie s may have opposing interests with respect to the answer of the questi on which is presented in the title. It is possible that the ''high-dev eloped'' country prefers to install a central tax authority while the ''low-developed'' country does not. However, in general the reverse or dering which is more in line with our intuition results.