Tax coordination is an important issue for Europe. This paper has two ambitions. First, we review
the economic literature on tax coordination. Second, we argue that the taxation of capital is not
an issue of efficiency, but instead an issue of equity. In particular, capital tax coordination can alter
the vertical distribution of income between the production factors capital and labour. Capital
is in perfectly elastic supply in a small open economy. Therefore the tax incidence falls to the immobile
factor, labour. By contrast, capital is in inelastic supply at the international level, and
therefore the capital tax incidence falls completely on capital, without welfare losses of taxation.