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Modeling Fiscal Policy in the European Union

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Janusz Kudla, Konrad Walczyk and Robert Kruszewski

The book discusses optimal fiscal policy for an internationally integrating economy when public borrowing is constrained. Various innovations have been introduced: the agglomeration effect, the fiscal solvency concept, the harmonization of capital income tax base with formula apportionment and transaction tax on financial transactions. Tax structure consists of taxes on labor, capital and consumption, and bonds – the study looks at equilibrium tax rates under international tax competition pressure, and estimates them econometrically. It also offers policy recommendations as a contribution to the discussion about the desired scope of fiscal integration in the European Union.
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References

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Aiyagari, S. R. 1994. Uninsured idiosyncratic risk and aggregate saving, Quarterly Journal of Economics 109 (3): 659-684.

Albanesi, S., and Sleet, C. 2006. Dynamic optimal taxation with private information, Review of Economic Studies 73 (1): 1-30.

Altshuler, R., and Grubert, H. 2010. Formula apportionment: Is it better than the current system and are there better alternatives?, National Tax Journal 63 (4): 1145-1184.

Aronsson, T., Löfgren, K-G., and Sjögren, T. 2001. Union wage setting and capital income taxation in dynamic general equilibrium, German Economic Review 2 (2): 141-175.

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