A new paper in the Journal of European Integration explores the relationship between tax competition, regional development and state aid control.
In the 1990s, partly against the backdrop of the impact of globalisation on tax revenues, 'unfair' tax competition rose up the policy agenda. EU and OECD initiatives led to the amendment of various tax measures sometimes, paradoxically, enhancing their attractiveness. In parallel, the European Commission pursued an increasingly rigorous approach to disciplining regional aid even in the most disadvantaged regions. Meanwhile, the European courts addressed the longstanding question of whether and in what circumstances corporate tax rates set by subnational authorities involve state aid.
The consequence of these policy outcomes is that national governments and 'genuinely' autonomous regional authorities may operate more generous tax measures than those authorised under the state aid rules in the most severely disadvantaged regions. This raises important issues for EU cohesion policy, small island economies, and the relationship between EU competition policy and taxation.
The article is available here.