Using a human capital based growth model, we show the essential role of labor mobility
and cross-country tax harmonization in equalizing income levels of countries that
start off from different initial income positions. Knowledge spillovers cum labor
mobility are the driving forces behind the income level equalization process. In
the absence of tax harmonization within an economic union, equality in income levels
is not achievable. Coordination of educational subsidies necessary for the internalization
of knowledge spillovers may or may not be necessary. These considerations constitute
the basis for our efficient growth agenda for an economic union such as the EU.