I will discuss how tax harmonization affects economic welfare.

1. Tax Harmonization

2. Before we can begin the deep dive ahead of us, we must
first know, at least to a general extent, what the phrase
tax harmonization means. Depending on what approach
is being discussed, the meaning will change in the
details. I will discuss how tax harmonization affects
economic welfare. However, at this point the answer to
the question which pertains to the usefulness of tax
harmonization can be swayed in either of the directions.

3. In "Fiscal harmonization in common markets" (2: 443) Shoup
explains tax harmonization, It usually implies a group of tax
adjustment programs somehow associated with various types
of economic integration. This is so because the term tax
harmonization has been developed, in response to the
practical need for a general and comprehensive term which
can cover a wide range of tax adjustment programs that are
as yet not being identified definitely, though likely to be
necessary to help in achieving a number of broad, and often
competing, political and economic objectives of an economic
integration. It has come to be understood that the term is
often used in a special sense, with relevance only for the
EEC.

4. Now, that we know what it means, we can move on to the evidence
that explains how tax harmonization effects economic welfare. As
it was previously stated, there are different approaches to take into
account, three of which shall be explained with reference to Shoup
in an effort to determine if tax harmonization is truly useful. The
first if which will be the equalization approach. This is, in general,
the most common way of thought which deals with competition
and keeping all parties on an equal playing field. Shoup explains
(1: 31-32) Its justification include the following: (I) It accords with
the aims of the union designated simply as "enhancing
competition." "Competition on equal terms" must imply all
producers facing the same tax schedules. (ii) It is in the favor of
those who see economic union merely as a preliminary to much
more important political union. For equalized tax rates are part and
parcel of the apparatus of a unitary state.

5. Second, is the differentials approach which changes the welfare
question in its essence to "what set of differentials optimize
welfare?" Shoup goes on to explain this further in (1: 33-34). It still
accords with the idea of reproducing the conditions of single
economy, but with a different interpretation. The new interpretation
is that the tax system is used for major economic goals, and the
same should be done on the union scale. But further, opportunity is
taken to use differential rates of tax, a means which has only a
limited counterpart in unified states. Harmonization must,
consequently, be defined as a pattern of pluses and minuses which
yields a net positive gain when they are politically weighted.

6. The differentials approach goes with a more active public-sector
control of the economy, and demands a much richer use of
economic analysis in harmonization studies. Harmonization is
determined by that was decided by reference to a given rule in
the equalization case; now it is decided by consideration of
case-by-case by a political assembly.

7. The third and final approach to aid in the determination of whether
or not tax harmonization is useful is the standards approach.
This approach is mainly about how in its simplest form tax
harmonization is quite basic. However, when more variables and
issues are allowed to be added into the equation, it quickly
becomes evident that this topic is far from simple. Shoup says
that (1: 37-38) This approach could be systematized in a way
similar to the differentials approach, but with a list of standards
forming the criteria column of the matrix. It seems at first sight
that the definition of tax harmonization is simple in this case,
being a tax change moving towards the standards. But once
conflicts are allowed, tax harmonization is as complicated as in
the differentials case: we need a "weighted net plus" for a tax
change to be harmonization.

8. Resources:
http://salestaxstrategies.com/sales-tax-issues.html
http://ezinearticles.com/?Tax-Harmonization&id=8990495

9. Thanks for reading!Thanks for reading!

10. Thanks for reading!Thanks for reading!