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ERMELINDA LOPES [email protected] SCHOOL OF ECONOMICS AND MANAGEMENT UNIVERSITY OF MINHO BRAGA – PORTUGAL Fax: 253 676375 May, 2012 Trade Balance as a Fiscal Policy Goal Abstract The fiscal policy in industrial economies converges more in tax burden then in tax revenue structure. As theory of optimal taxation suggest, the excess burden showing the welfare loss experienced as a consequence of paying a tax. The fiscal international discussions increases on the level of the EU, the G-20, the OCDE, the UN, the IMF, and WTO in order to increase new measures in fiscal policy towards higher trade and, generally, also lower taxes. These results can be measured by higher integration with effects, namely, in trade, labor market and taxation. In this paper, we compare intra-EU trade between 2002 and 2007. For several EU Member States, EU represents more than 70% of trade. We also compare tax burden, as well as labor and capital income taxes, between1960-2009. We conclude that fiscal policies can improve economic growth and trade balance sustainability. The government revenues through economic growth are more sustainable than government expenditure with higher taxes, or financing. Trade balance as a fiscal policy goal can be implemented with lower corporate income tax rates, as well as VAT rates reducing, by this way, the market prices. Both are those with higher implications in price structure of goods, affecting trade and budget sustainability. JEL No. E62,F15,F16,F23 1. Introduction Economic integration promotes positive results to firm management and trade balance reducing, by this way, the financial needs to the economies with a persistent budget deficit. If there are these two financial needs, in budget and trade deficits, they difficult a sustainable growth mainly in a strong taxes competitiveness environment. When we compare, for example, the average in EU15 with the average in10 new Member States, in 2005, we see a big disparity in corporate tax rates within EU registering 30.4 and 18.2, respectively. This disparity can provoke a relative disincentive to economic growth. The enterprise movement towards New Member States through the foreign direct investment (FDI) looking for lower taxes rates, that also provokes an increase trade, from economies with lower cost (poorer) to those with higher market demand (richer). Within European context, the protectionism is yet referred as one of the most important impediments to international trade and investment. This is the case of Germany, Denmark, Norway, Czech Republic and Slovakia (CESifo 2010: 24). Considering the economic growth also a result of economic factors mobility, makes sense the mobility of capital and labour be a result of higher proximity and interdependency between economies, mainly between neighbours, and with deeper political relationship. Considering EU as a whole, and comparing trade between 2002 and 2007, it is visible an increasing growth in exports and imports, mainly, in intra-EU27. Table 1, shows us the dimension of EU27 world trade (goods and services, volume), in 2008. We can see that EU plays an important role in the world trade. Represents close to 40% in exports and also register a close value in imports, which implies a little trade disequilibrium. Euro area shows a positive trade, with 29.4% and 29.2% of export and imports, respectively. This information gives us an idea about the recent dimension of EU in world trade. Table 2 shows information about world GDP, in volume. In 2008, the EU27 and EU16 show different values: 22.3% and 15.9%, respectively. Other relevant information is the euro area external trade surplus with 6.7 bn euro, compared with 5.7 bn euro deficit, for EU27, in July 2010. It is also important to say that EU27 trade surplus increased, mainly with the USA and Switzerland; and trade deficit increased with China, Russia and Norway as we can see in Eurostat (2010:1). H.-W. Sinn in CESifo (2010: 14) refers that Germany developed a large trade surplus that minored the trade deficit in other euro countries, and confirms that it is true with the GANL countries1 where Germany has the main EU exporter country. If we consider that current account surplus as capital export, if not, no net flow of capital can leave the country. However, this reason can also explain its lower growth compared with the ROE countries2 as argues H.-W. Sinn. This pessimistic point of view, in our opinion, is rewarded by its position in the world context, when he states that Germany has been the world`s second biggest capital exporter after China and ahead of Japan. 1 2 The GANL countries include Germany, Austria and Netherland. The ROE countries include the rest of the eurozone. 2 Face this trade reality, makes sense to considered also the fiscal policy as a way to improves trade performance, as well as, capital and labor mobility. There is welfare cost with income taxes, being labor income taxes those where there are more disparities, as show Christina Romer and David Romer (2012) by net income classes. In this paper, we emphasize these points. First, we develop some basic concepts of fiscal policy. Second, we show the relevance of integration to trade, using EU sample. Third, we compare the disparities between main different taxes, particularly, labor and corporate income taxes, as well as VAT rates. We conclude that, there are in EU richer countries with lower corporate income taxes revenues and better results in trade balance. Then, knowing that tax income is usually detrimental to growth, it is important to think more about fiscal policy in order to determine the optimal combination of monetary and fiscal policies needed to implement successful fiscal consolidation, as suggest Huixin Bi, Eric Leeper and Campbell Leith (2012). 2. Tax theory: the basic concepts In this point the objective is to present the tax theory as a relevant issue of international macroeconomics that also includes integration and trade. All issues are increasingly sources of business decisions that must be considered in management agenda. In an era of globalization the market dimension increase, both, in amount of consumers, but, also, in purchasing power. The global competiveness index includes several economic and institutional dimensions, but, private and public confidence institutions are essential to trade. The taxes structure represents an important component of cost that firms, increasingly, need to consider when they chose a market to produce or to sell and buy. The globalization, while respecting the principle of national tax sovereignty, implies an increasing in global initiatives regarding tax policy, as refer Jan Wourers and Katrien menwissen (2011). They refer several initiatives, namely, the recent efforts of G-20 about Financial Activities Tax (FAT). Recent developments about the theory of optimal taxation, particularly to capital factor, suggest that tax rates to capital should be equal to zero in the long run, as we can see in Thomas Piketty and Emmanuel Saez (2012). This idea makes sense, knowing that there already is a cost with capital depreciation. Capital tax is a cost to firms management and then implies lower grow as conclude Afonso et al. 2011. This fact, justify the suggestion of Thomas Piketty and Emmanuel Saez (2012), where indicate that all inheritance taxes and property taxes, as well as, corporate profits taxes and individual taxes on capital income should be eliminated and that, the resulting tax revenue loss should be recouped with higher labor income or consumption or lump-sum taxes. 2.1 Direct tax initiatives as income tax: Capital and Labor tax Direct tax (T) initiatives include income tax, being capital (TK) or labor tax, (TL). They are stronger in fiscal policy discussion, even knowing that they are not the higher share as government revenues. Both are direct tax 3 initiative compared with VAT that is an indirect tax. Nowadays, the financial and economic globalization offers opportunity to factors mobility, first, to capital and then to other factors. Financial innovation creates additional conditions to accelerate the mobility of capital factor. Thomas Piketty and Emmanuel Saez (2012) pay attention to two key ingredients for a proper theory of capital taxation: The large aggregate magnitude, the high concentration of inheritance and imperfections of capital markets. These reasons justify the recent efforts by international institutions to taxation the capital movements in order to reduce the financial crisis promoted by financial speculations. This fact imposes substantial capital taxes to advanced economies where the total tax revenues are relevant, particularly, in EU with 39% of GDP, and much less, in US, with 27% of GDP. The contribution of firms and workers to social security system in Europe makes the main inequality. However, makes sense also to consider that, real interest rate (r) result from the following equation: r = iWhere, i is the nominal interest rates and, is inflation. Then, if i = => r = 0; in this situation, any additional cost, as capital tax, implies a negative return to capital. Being disposable income, Yd = Y – T, considering Y as total income and T as total taxes, an increase in any taxes decreasing Yd. Christina Romer and David Romer (2012) using US data for investigating the incentive effect of changes in marginal income tax rates, concluding that they are positive but small, and income taxes were paid almost entirely by the rich. Thomas Piketty and Emmanuel Saez (2012) analysis the income in several countries and show the annual inheritance flow as a fraction of disposable income in France, between 1820-2008, where we can see a recent increasing, reaching around 20%. There also is instability in its tax flow, increasing since fifty years, registering more than 16%, in 2008. Not less important, is to compare the income tax rates between, U.S., U.K., France and Germany. There is a big decreasing after 1980, and also a strong convergence between them after 2000. Comparing income tax rates between labor income and capital income between, U.S. and U. K., we can also see a significant decreasing, after 1980, and also a convergence between them. In a context with financial crisis, there are more difficulties to deficit financing, particularly, in EU context, where Debt/GDP ratio increase strongly for several EU counties. Then, arrangement to limit the deficit as a constraint on the budgetary process, can be a better solution to the problem, and not increase the capital income tax, which promotes the mobility to capital factor. If not, the growth rates can decrease by both, lower capital return and higher capital tax, which implies lower investment. The persistence of budget deficit is an import point to be reflected. Charles Wyplosz (2012) pay attention to fiscal rules as an essential point to be considered to control the financial crisis and their need to be controlled, namely by tax, and identify the number of years with budget deficit in excess of 3% of GDP between1999-2011. 4 2.2 Corporate and international corporate taxes Corporate tax rates vary greatly around the world. Lower corporate tax rates promote the possibility for greater economic production and then, higher self-financing. But it is also true that higher corporate taxes rates are a way to contribute for government spending in order to financing public policies, such as health, education, infrastructures, security, etc. Defining corporate income tax from the personal income tax, in first case, there is a tax net income, or profits, and not gross income, allowing deductions of the business cost. It is an old tax compared with VAT. There is an economic discussion about the incidence of the corporate income tax. Some believe that its burden falls entirely on the owners of capital. However, this reason is, partially, justified by the capital mobility, whose capital flow to investments that produce higher after-tax returns. The financial globalization is a way to promote higher investments in any place around the world, and then, generated incentives to international tax differences, being also a way to international profit shifting by multinationals. Harry Huizinga and Luc Laeven (2008) conclude that international profit shifting leads to a substantial redistribution of national corporate tax revenues. Within EU context, the economic and monetary integration improves these opportunities. In fact, the corporate income tax raises the cost of capital and reduces after-tax returns and thus, increases the migration of capital into non-corporate or tax-exempt sectors of the economy. Other changes in business organization can result from the market financing, reducing market equity returns and increase the issuance debt because interest payments are tax deductible, while dividend payments are not. The investments in assets financed by debt tend to be preferable (also because can be used more easily as collateral for loans), than those financed by stock. Corporate bonds outstanding increased strongly, mainly, in US market. The corporate income in Europe is taxed at different rates in different countries, and then, improves to the international profit shifting within multinationals. Harry Huizinga and Luc Laeven (2008) conclude that, within European context, many European nations appear to gain revenues from profit shifting by multinationals largely at the expanse of Germany. In fact, in this work, Germany is the EU Member State with lower corporate income tax revenues as % of total revenues. 2.3 Value Add Tax (VAT) Value Add Tax (VAT) is an indirect tax initiative (Ti) and is also a consumption tax (TC). Cross country indirect initiatives can be used to achieve global rebalancing as well as exchange rates. This tax must be compared mainly, between countries within an integration process. Chunding Li and John Whalley (2012) compared the world´s three largest economies (US, Germany and China) and conclude that VAT structures are not only good for global rebalancing but also beneficial for welfare and revenue collection. Normally, the imports are taxed with VAT but, exports leave the country tax free. Within EU27, the value of taxes less subsidies on products 5 represents 10.2 of GDP, as we can see in Eurostat, 2010. A VAT system has implications in international trade by using the destination principle and the origin principle. Normally, the exports are exempt with refund of input taxes (free of VAT), and imports are taxed as locally produced goods. This implies that different taxes provoke different cost between countries. In destination principle imports are taxed while exports are not taxed, in the origin principle is the opposite. Within countries with origin principle, as Germany and China, makes sense an increase in Foreign Direct Investment (FDI) to other economies, in order to sell directly in market. Naturally, the effect on trade balance will be significant. However, it can be accommodated by divergence in exchange rate or wages rate changes. Chunding Li and John Whalley (2012) argues that destination principle can promote exports more than imports, and show the major global countries from 2001 to 2010, identifying China, Germany and Japan as those with surplus, and US those with deficit. Comparing the tax revenue structure, Carlos Vegh and Guilhermo Vuletin (2012) conclude that industrial countries rely heavily on direct taxation, particularly on personal income. In contrast, developing economies rely more on indirect taxation, particularly the value-added tax. This last ones, was created in 1948, in France, and followed by Denmark, as first European country (but not yet as EU Member State, only in 1972), in 1960. 3. Integration as a trade support: the European Union In this point we pay attention to the dimension of economic transactions between each Member State and EU, as a whole. The economic growth is a way, but also a result of economic factors mobility, mainly, between neighbours and with deeper political relationship. The international currencies are a good vehicle to real economic transactions and promote exports and imports as an important component of GDP. The economic growth and a trade balance are also a support to budget deficit, facilitating the fiscal policy role. 3.1 Trade between Member States We know that trade unbalanced also creates a need of liquidity and makes a currency as a scarce resource. In euro area, the euro as a strong international currency creates an additional difficulty to trade balance, when its exchange rate becomes to increase. This phenomenon is worst if also the public accounts of same country register a deficit. The result it will be higher interest rates. The economic trade balance increases with real transactions, then, we pay attention to the information about external and intra-European Union trade, from 2002 to 2007 as we can see through Eurostat (2009). Comparing 2002 with 2007, we can see an increasing growth in exports and imports, mainly, in 6 intra-EU27. First, we pay attention to EU dimension as a whole, considering EU and euro area. Table 1 shows us these both dimension in world trade. TABLE 1: World Trade (goods and services, volume) and world GDP (volume), in 2008 Exports (a) Imports World GDP (a) (c) EU (b) 39.1 39.5 22.3 Euro Area (b) 29.4 29.2 15.9 Source: European Economy 10/2009, European Commission and our contribution. (a) Relative weights, based on exports of goods and services (at current exchange rates) in 2008. (b) Intra and extra EU trade. (c) Relative weights, based on GDP (at constant prices and PPS) in 2008. We can see that EU plays an important role in world trade. Represents close to 40% in exports and also register a close value in imports, which implies a little trade disequilibrium, as table 1 shows. The euro area shows a positive trade with 29.4 of exports and 29.2 of imports. This information gives us an idea about the recent dimension of EU in world trade. Table 1 also shows information about the EU share in world GDP. The EU27 and EU16 registered, in 2008, the following values: 22.3 and 15.9, respectively. More recent information, Eurostat 2010, refers that, in euro area, there is an external trade surplus with 6.7 bn euro, compared with 5.7 bn euro deficit, for EU27. The EU27 trade surplus increased, mainly with the USA and Switzerland; and trade deficit increased with China, Russia and Norway, as we can see in Eurostat (2010). H.-W. Sinn in CESifo (2010) refers that Germany developed a large trade surplus that minored the trade deficit of other euro countries, and confirms that it is true with the GANL countries 3 where Germany has the main EU exporter country. Considering the current account surplus as capital export, this fact, can also be seen as an exporting capital because without a current account surplus, no net flow of capital can leave the country. However, this reason can also explain its lower growth compared with the ROE countries4 as argues H.-W. Sinn. This pessimistic point of view, in our opinion, is absorbed by its position in the world context, when he states that Germany has been the world`s second biggest capital exporter after China and ahead of Japan. 3 4 The GANL countries include Germany, Austria and Netherland. The ROE countries include the rest of the eurozone. 7 3.2 Portugal and Poland and its main partners We pay attention two Member States of EU: Portugal as eurosystem member and Poland only as EU member. In Portugal we can see the following information: TABLE 2: Portugal and its main partners (billion EUR) Exports 2002 2007 Imports 2002 2007 Total 27.4 37.6 Total 42.5 57.1 Intra-EU27 22.3 28.8 Intra-EU27 33.9 43.0 Extra-EU27 5.1 8.8 Extra-EU27 8.6 14.0 Spain 5.7 10.2 Spain 12.3 16.8 Source: European Commission (2009). Eurostat The table 2 shows an intensive intra-EU27 trade. There is increasing values in export but also in imports, particularly, between intra-EU27. Spain and Germany, as main Portuguese partners, absorb more than half of Portuguese exports: 5.7 and 4.8 billion EUR, in 2002; and 10.2 and 4.8, in 2007. However, there is a big increasing in Spain and stagnation in Germany. The imports, in 2007, represent 16.8 and 7.3 from total intra-EU27 whose value was 43.0 billion EUR. There is a big negative trade balance for Portugal with its main partners which increases between 2002 and 2007. Angola, USA and United Kingdom are the exception, in both periods of analysis. If we do a similar analysis to Poland, we can see the following: TABLE 3: Poland and its main partners (billion EUR) Exports 2002 2007 Imports 2002 2007 Total 43.5 102.3 Total 58.5 120.9 Intra-EU27 35.3 80.7 Intra-EU27 40.8 88.6 Extra-EU27 8.2 21.6 Extra-EU27 17.7 32.3 14.1 26.5 Germany 14.2 35.1 Germany Source: European Commission (2009). Eurostat Poland as Member State of the EU intensifies its exports much more than Portugal. Increase from 42.5, in 2002, to 102.3 billion EUR, in 2007. However, imports following the similar tendency and registers 58.5, in 2002 and 120.9, in 2007 which provoke higher trade deficit from 15.0 to 18.7, respectively. Concluding, Portugal concentrates its main extra-EU27 trade (export) in USA, Angola and Brazil, but more recent data shows that Angola becomes first. Poland concentrates in Russia and China. 8 The intra-EU27 trade represents a big part of trade in each EU Member States and also can explain, partially, the decreasing of transatlantic trade as emphasize Philip Whyte (2009). Trade is an important component for growth sustainability, but both countries increase their disequilibrium in trade. However, there is a strong trade intensification of intra-EU27 which reinforces the European currency sustainability. 3.3 EU trade (goods only- 2008): Portugal and Poland Through table 4, we can see more recent information about the share of EU trade in Portugal and Poland, in 2008. Portugal and Poland are two countries within EU, but the location, the age as EU member, and monetary integration can explain some specific orientations of its exports, both with specifics markets, namely, within EU countries as we can see before. TABLE 4: EU Trade (goods only): Portugal and Poland (2008) Exports Portugal EU27 76.8 Imports Poland 78.5 Portugal Poland 72.6 73.4 Source: European Economy 10/2009, European Commission . For both EU Member States, EU represents more than 70% of trade, particularly, the export whose destination represents 76.8% (Portugal) and 78.5% (Poland) of total exports. For imports, the EU are also very important role registering, however, lower values: 72.6 and 73.4 to Portugal and Poland, respectively. The dimension of EU trade is strong between all EU27 Member States proving the advantageous of integration through the single market, and not less important, the trade intensification through the single currency. Both pillars prove to play a very important role in this project, as a whole. 4. A trade balance as a fiscal policy goal The tax burden, defined as government revenue expressed as percentage of GDP, changes significatively across countries, even between EU Member States. Carlos Vegh and Guilhermo Vuletin (2012) refer that there is a consensus in literature sustaining that government spending has been procyclical in developing countries and countercyclical in industrial economies, however, there is no evidence on taxation side. Their work confirms this last point. They study cyclical properties of tax rate 9 policy including 62 countries (20 industrial economies and 42 developing countries), for the period 1960-2009, considering personal income, corporate income and value-added tax rates. Not less important, is the positive correlation between government spending and total tax revenues, as well as with output volatility. 4.1 Corporate tax rates The fiscal policy in industrial economies converges more in tax burden then in tax revenue structure. But compare industrial economies with developing countries the convergence is higher in tax revenue structure. The income, been corporate or personal, has been more stable in taxes and revenue than the value-added tax. If there is a positive result in trade balance it will be an instrument to finance the economy and can attenuate the negative effects of budget deficit provoked by insufficient tax revenue. The opposite situation, a negative trade balance, imposes additional financial needs that can be a source of instability, mainly, in Member States where there also is disequilibrium in budget (budget deficit). We can see through the table 5 the average corporate taxes rates that comparing the EU15 with new Member States (New MS10), in 2005. Not less important, is to compare the tax burden (% of GDP) between industrial economies and developing countries between1960-2009. Table 5: Corporate tax rates in 2005, and tax burden between 1960-2009 (% of GDP) Corporate tax rate (2005)* Tax burden (1960-2009)** EU15 30.4 Industrial economies 25.5 New MS10 18.2 Developing countries 18.8 Sources:* Nicodeme, 2006 in Raudonen, TUTWPE nº 182. ** Carlos Vegh and Guilhermo Vuletin, 2012. There is a divergence between them that provokes a relative economic growth disincentive in EU15, and also in industrial economies, as a whole. This reality, diminishing the foreign direct investment (FDI) and, by this way, the international trade, that will also be promoted through a decreasing in corporate taxes rates. It will be a good strategy to trade balance to be used by a fiscal policy goal. 10 4.2 Tax revenue composition Tax revenue structure differs from country to country. The tax burden is also important in each country and, diverges significantly. Now we also pay attention to value-added tax revenues (as % of total tax revenues) between EU15. Table 6: EU15 Tax burden and value-added tax revenues (as % of total tax revenues): 1960-2009 Tax burden Value-added tax revenues Austria 23.42 27.84 Belgium 31.38 26.15 Denmark 36.82 30.98 Finland 25.23 35.87 France 19.49 39.95 Germany 14.11 27.59 Greece 30.82 32.94 Ireland 34.68 27.41 Italy 27.66 23.45 Luxembourg 38.56 22.39 Netherlands 30.24 30.04 Portugal 20.70 33.26 Spain 18.53 26.79 Sweden 31.65 37.39 United Kingdom 33.82 22.88 Source: Carlos Vegh and Guilhermo Vuletin, 2012. 11 Fig. 1: Tax burden (% GDP) and VAT (% revenue), 1960-2009 45 40 35 30 25 20 15 Tax burden(% GDP) VAT ( % revenue) 10 5 0 We can see that Luxembourg register higher tax burden as % of GDP, with 38.56, and France registers the higher value-added tax revenues (as % of total tax revenues) with 39.95. By the other side, Germany registers the lower value, with 14.11 and, Luxembourg with 22.39, respectively. It is visible a big disparities within both tax revenue indicators. 4.3 Tax revenue composition: personal and corporate income taxes Tax revenue structure differs from country to country, not only in tax burden (as % of GDP) and valueadded tax revenues (as % of total tax revenues), but also, in personal and corporate tax income. Both, personal and corporate taxes, represents more than 50% (as percentage of total tax revenues), in several countries, as is the case of Belgium, Italy and Spain. 12 Table 7: EU15 personal and corporate income tax revenues (as % of total tax revenues): 1960-2009 Personal income tax revenues Corporate income tax revenues Austria 36,18 8,74 Belgium 47,13 12,16 Denmark 35,06 8,69 Finland 25,65 11,39 France 22,15 14,27 Germany 38,63 5,17 Greece 22,48 14,25 Ireland 35,62 13,81 Italy 43,24 12,29 Luxembourg 28,30 18,04 Netherlands 29,66 17,02 Portugal 26,02 14,11 Spain 37,09 21,66 Sweden 11,47 12,97 United Kingdom 37,58 12,24 Source: Carlos Vegh and Guilhermo Vuletin, 2012. Fig. 2: Personal income tax and corporate income tax, (1960-2009) 50 45 40 35 30 25 20 15 10 Personal income tax Corporate income tax 5 0 13 We can see that Belgium register higher personal income tax revenues, with 47.13 as % of total tax income, and Spain register the higher corporate income tax rate revenues, with 21.66 as % of total tax income. By the other side, Sweden registers the lower value, with 11.47 and, Germany with 5.17, respectively. There is a significant disparity within both income tax revenues, personal and corporate, but much higher between personal income taxes. It is also relevant to say that personal income tax is the main source of tax revenue, but Sweden in the only one where the corporate income tax revenues are higher than personal income tax, with 12.97 and 11.47, respectively. Not less important, it also is those that register lower value, considering the average of both tax revenues, as we can see easily, through the Fig. 2. 4.4 EU VAT rates To know more about tax revenue structure, make sense to consider also the value-added rates. By this way, we have a deeper understand of fiscal policy system, and reinforce the information about tax burden (as % of GDP), value-added tax revenues (as % of total tax revenues), as well as personal and corporate tax income. Table 8: EU15 value-added rates (VAT - standard rate), 2006 VAT rates (standard rate) Austria 20 Belgium 21 Denmark 25 Finland 23 France 19.6 Germany 19 Greece 23 Ireland 23 Italy 21 Luxembourg 15 Netherlands 19 Portugal 23 Spain 18 Sweden 25 United Kingdom 20 Source: European Commission, 2012. 14 Fig. 3: VAT rates (Standard rate), 2006 VAT rates (standard rate) 30 25 20 15 10 5 0 VAT rates (standard rate) We can see that Denmark and Sweden register, both the higher value with 25 % VAT rates and Luxembourg registers the lower value 15 %. This is the income (indirect tax) where there are lower disparities between EU15 Member States. Sweden has lower income with personal and corporate income taxes, but has a stronger in VAT rates, registering 37.39 in value-added tax revenues (as % of total tax revenues). The market price of products can differ, not only by direct tax structure, but also by indirect tax. These lower disparities can be significant, particularly when Members States are neighbors. 5. Conclusion We conclude that there are EU richer countries with lower corporate income taxes revenues and better results in trade balance. The trade balance can be an instrument to finance the economy and can attenuate the negative effects of budget deficit provoked by insufficient tax revenue. The fiscal policy in industrial economies converges more in tax burden then in tax revenue structure. But, compare industrial economies with developing countries between 1960-2009, the convergence is higher in tax revenue structure. The tax burden divergence, as well as their tax rates structure, provokes a relative disincentive to economic growth in EU15 compared with New Member States, and also within industrial economies, as a whole. Then, the foreign direct investment (FDI) and, by this way, the international trade, will also be 15 promoted through a diminishing in tax divergence, particularly, between the corporate taxes rates. This fiscal policy goal can be a good strategy to trade balance. Finally, knowing that tax income is usually detrimental to growth, it is important to think more about fiscal policy in order to determine the optimal combination of monetary and fiscal policies needed to implement successful fiscal consolidation, as suggest Huixin Bi, Eric Leeper and Campbell Leith (2012). References Alan Peacock (2006). Wagner`s Law of increasing expansion of public activities. In Public Economics: Empirical Public Economics. Editted by Attiat F. Ott and Richard J. Cebula. The Elgar Company to Public Economics. Anderton et. all (1992). Macroeconomic Convergence in Europe: Achievements and Prospects. In Economic Convergence and Monetary Union in Europe. Edited by Ray Barrell. 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