ECB Sees Risk of Tax Race to the Bottom Following U.S. ReformBy
As economists ponder how much additional growth is in store for the U.S. economy following the implementation of President Donald Trump’s wide-reaching tax reform, the European Central Bank says the consequences for its own jurisdiction “are highly uncertain and complex.”
The tax burden on U.S. corporate income will fall significantly to a level close to that in a number of euro-area economies, the Frankfurt-based institution said in a report published Monday. That could overhaul the way companies choose to invest or shift profits.
“The reform risks intensifying tax competition worldwide, entailing a possible erosion of tax bases in EU countries,” the ECB said.
Prior to the reform, the U.S. corporate tax rate stood above the rates of all large euro-area countries, the ECB said. While the reform could carry some positive macroeconomic spillovers if a stronger U.S. economy raises demand for euro-area goods and services, “the overall size of the effect is likely to be rather small.”