In this paper, the authors deal with the issue of the challenges of current tax policies in the countries of the European Union (EU), as well as the impact of tax harmonization on their national economies. Tax rates in each national economy should be in line with the elasticity of supply and demand. If the differences between supply and demand are greater, the arguments against tax harmonization are stronger, and vice versa. Existing tax rates by country are often inconsistent with the elasticity of supply and demand, which can lead to various forms of inefficiency.In the last decades, tax harmonization has been taking place in the EU, primarily VAT, in order to introduce a uniform tax rate at the EU level, which further implies a reduction in tax competition. However, tax harmonization does not suit all countries equally. Profits from tax harmonization are mainly in countries that are moving from high tax rates to low tax rates. However, much depends on whether harmonization includes only income tax, consumption tax, or both.
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