To harmonize or to compete? That's not the question

Neoclassical public economists stress economic distortions induced by differential taxation and therefore favour harmonization; political economists focus on political distortions and therefore reject harmonization. However, policy choices on the possibility frontier between economic and political distortions tend to be biased: economic advisers, politicians and interest groups typically favour harmonization. Harmonization is, moreover, undermined by incentives to re-establish tax differences. Both activities prevent the possibility frontier from being simply a menu of choice. Popular referenda and functional, overlapping, competing jurisdictions (FOCJs) are institutions able to reduce political distortions and to shift the possibility frontier.