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Is corporate tax competition a threat to democracy in the European Union (EU)? The answer depends crucially on a positive analysis of the effects of tax competition on national policy autonomy. Most analyses focus on direct effects on corporate tax rates and revenues. We contend that this focus is too narrow. It overlooks the fact that corporate tax competition also has important indirect effects on the progressivity and revenue-raising potential of personal income taxation. We elaborate on these indirect effects theoretically and empirically, and explore the implications for the normative debate on the EU's democratic deficit. Our findings show that European integration can constrain national redistribution in a major way: the democratic deficit is real. Greater political contestation over the EU's policy agenda is desirable in order to mitigate this deficit. [ABSTRACT FROM AUTHOR]

Why does the principle of mutual recognition apply to product regulation but not to product taxation, i.e. to value added tax (VAT)? It is not for lack of trying. The Commission called for mutual recognition of VAT long before the European Court of Justice 'invented' it for product regulation, and the thrust of much of the EU's VAT policy was to implement this principle. I argue that three factors explain the failure of this policy and the comparative success of mutual recognition of product regulation. First, it is economically less beneficial to apply mutual recognition to turnover taxation than to product regulation. Second, it is politically more demanding. Third, in contrast to product regulation, there is no judicial pressure towards mutual recognition of VAT. A review of these factors helps to understand not only the specific problems of mutual recognition of VAT but also the general problems of tax integration in the EU. [ABSTRACT FROM AUTHOR]