HOW TAX COMPETITION HAS REDUCED EUROPEAN CORPORATE TAX RATES

The 50th anniversary since the signing of the Treaty of Rome, that set up the European Economic Community among six countries and that has since evolved into today's European Union, incorporating 27 member states. There has been much guessing about the truest role of the EU. European Union was founded on free-market principles according to the Treaty of Rome but in the future there was not a lot of signs of success stories and structural environment that supports economic growth and the creation of free-market institutions from 1970s onward when the per capita GDP gap between the U.S. and the EU had started to widen. One reason for a lagging gap was the political power given to trade unions which strongly influenced the extent of labor policy on periphery of Keynesian economic policy. In Europe, there are shining examples of economic success. For example, Ireland launched its path toward economic integration as a poor and almost third-world country. Pro-growth policies and rock-bottom taxation level through the post-war period had helped to stimulate the economic boom, later trademarked as Celtic tiger. Today, Ireland is the second richest member of the EU.

One issue that separates the EU is the issue of taxation. There is actually no uniform taxation, no common VAT and no common direct or indirect taxation. The Maastricht criteria setup the fiscal discipline required for the minimisation of public financial risk to adopt Euro and therefore enter the eurozone. In recent decades, policymakers in Brussels have pushed their proposals toward the harmonization of taxes which is, indeed, another wish on behalf of European "revenue-hungry" officials to eliminate tax-friendly incentives in booming economies such as Estonia, Cyprus and Ireland where tax rates on corporate income are in the lowest decile in comparision with the rest of Europe. Tax competition has sharply reduced corporate tax rates in Europe as a Maltese newspaper reports.