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In scenario 1, each country individually maximizes its own welfare (benchmark). In scenarios 2 and 3, total welfare in the EU is maximized over a common budget constraint. Unlike scenario 2, the social planner of scenario 3 differentiates taxes by country of residence. If a common tax and transfer system were implemented in the EU, countries with a relatively higher mean wage rate\u2014particularly those in Western and some of the Northern European countries\u2014would transfer resources to the others. Scenario 2 implies increased labor distortions for almost all countries and, hence, leads to a contraction in total output. Scenario 3 produces higher (lower) marginal taxes for high- (low-) mean countries compared to the benchmark. The change in total output depends on the income effects on labor supply. Overall, total welfare is higher for the scenarios involving a European tax and transfer system despite more than two thirds of all the agents becoming worse off relative to the benchmark. A politically more feasible integrated tax system improves the well-being of almost half of all the EU but considerably reduces the aggregate welfare benefits.<\/jats:p>","DOI":"10.1007\/s00355-021-01314-1","type":"journal-article","created":{"date-parts":[[2021,3,19]],"date-time":"2021-03-19T19:02:51Z","timestamp":1616180571000},"page":"301-346","update-policy":"https:\/\/doi.org\/10.1007\/springer_crossmark_policy","source":"Crossref","is-referenced-by-count":3,"title":["Equity-efficiency implications of a European tax and transfer system"],"prefix":"10.1007","volume":"57","author":[{"ORCID":"https:\/\/orcid.org\/0000-0001-8238-1967","authenticated-orcid":false,"given":"Eren","family":"G\u00fcrer","sequence":"first","affiliation":[]}],"member":"297","published-online":{"date-parts":[[2021,3,19]]},"reference":[{"issue":"1","key":"1314_CR1","first-page":"8","volume":"68","author":"GA Akerlof","year":"1978","unstructured":"Akerlof GA (1978) The economics of \u201cTagging\u201d as applied to the optimal income tax, welfare programs, and manpower planning. 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