Effects of Tax Competition on the Economy of EU Member States

This paper aims to analyze the concept of fiscal competition and the goals pursued by the authorities to stimulate the increase of budgetary efficiency. Fiscal competition stimulates economic activity by releasing investments and reducing the profit available for reinvestment by the fact that shareholders' investment income is heavily taxed. Next, the main causes of fiscal competition are identified, the analysis focusing mainly on the impact of globalization, and finally the effects of competition on economic factors, but also those of a political nature are analyzed. Tax competition can be seen as a way to gain global competitiveness. States compete with each other to attract foreign investment. Without fiscal competition, governments could engage in monopoly behavior by charging excessive taxes. As there is pressure to reduce tax rates and budget spending, tax competition can be considered a very important factor in supporting the development of the world economy. With the economic downturn, fiscal policy has been viewed with more interest, as it was expected to be effective in the economic recovery