The political economy of tax reforms

The recent LuxLeaks revelations, in combination with the constraints imposed on public finances and EU market integration, have moved member states’ tax policies high up on the policy agenda. Participants at a seminar, organised by DG Ecfin at the European Commission on October 19th, discussed member states’ tax reforms and highlighted the need for closer cooperation among member states in the context of the efforts at economic policy coordination. CEPS CEO Karel Lannoo was invited to participate in this seminar as an external discussant. In his introductory remarks, he emphasised that taxation is an extremely sensitive issue for citizens, not only at national level but also at EU level, making reform very difficult. Tax reforms at EU level have been extremely slow and very limited, compared to other policy areas, owing in part to need for unanimity in EU decisions in this area. In comparing tax reforms in the EU member states, the CEPS Chief Executive observed that it is difficult to discern a distinctly EU trend, and wondered whether EU member states’ systems are more comparable than other tax systems in developed economies. Lannoo concluded his intervention by noting three achievements in this area: 1) the 2003 taxation of savings Directive, 2) the related generalisation of the exchange of information among member states and with 3rd countries and 3) the action by the EU against distortive tax practices in some member states through the state aid procedures. He called for more EU policy initiatives in this domain to demonstrate to citizens that the EU matters.