Title: European fiscal solidarity: an EU-wide optimal income tax approach

Authors: Laura Seelkopf; Hongyan Yang

Addresses: European University Institute, Via dei Roccettini 9, I-50014 San Domenico di Fiesole, Italy ' Helmut-Schmidt-Universität Hamburg, Holstenhofweg 85, 22043 Hamburg, Germany

Abstract: The current financial crisis has brought Europe to a critical juncture. In this paper, we map fiscally the United States of Europe. We simulate an optimal EU-wide income tax and calculate the implied cross-country transfers. The comparison of the implied transfers with the real transfers shows how insufficient the actual transfers are in reducing income disparities across the EU. Moreover, to evaluate the chances for a stronger European fiscal integration within different (core-) groups of member states, we illustrate the winners and losers from optimal EU-wide income redistribution across the Union. While the need for centralised redistribution grows with the number of heterogeneous member states, the implementation of a European income tax becomes, at the same time, ever more unlikely.

Keywords: European Union; inequality; redistribution; solidarity; fiscal policy; optimal taxation.

DOI: 10.1504/IJPP.2018.090752

International Journal of Public Policy, 2018 Vol.14 No.1/2, pp.145 - 163

Accepted: 08 Aug 2017
Published online: 27 Mar 2018 *

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