This thesis aims to shed light on the theoretical and empirical support for capital tax competition in the European Union, and how asymmetries in the levels of public debt in EU member states may affect the outcome of the tax competition game. The theoretical and empirical literature on tax competition is surveyed, and an empirical investigation of tax competition pressures for a panel of EU countries is conducted. Moreover, a simple tax competition model is augmented with asymmetric steady state debt level and the prediction for taxes and expenditures are testedempirically for EU countries. The conclusions are that tax competition does seem to put a downward pressure on capital taxes, but agglomeration forces counteracting this. Debt asymmetries lead to asymmetries in primary expenditures and overall taxes, but not in capital taxes in European countries