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A Theory of User-Fee Competition

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  • Clemens Fuest
  • Martin Kolmar

Abstract

We develop a two-region model where the decentralized provision of spillover goods can be financed by means of taxes or user fees. In order to enforce the fees regions have to invest in exclusion. We show that a decentralized solution tends to be inefficient. There will be over-investment in exclusion and an underprovision of the spillover goods compared to a centralized solution. In addition the regions have strategic incentives to set user charges. If the regional spillover goods are substitutes user fees tend to be inefficiently low, whereas they tend to be inefficiently high if the spillover goods are complements.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1166.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1166

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Keywords: public goods; club goods; user fees; fiscal federalism;

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References

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  1. Kurtis J. Swope & Eckhard Janeba, 2005. "Taxes or Fees? The Political Economy of Providing Excludable Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(3), pages 405-426, 08.
  2. Hans-Werner Sinn, 2002. "The New Systems Competition," NBER Working Papers 8747, National Bureau of Economic Research, Inc.
  3. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers 4, John Deutsch Institute for the Study of Economic Policy.
  4. Fraser, Clive D., 1996. "On the provision of excludable public goods," Journal of Public Economics, Elsevier, vol. 60(1), pages 111-130, April.
  5. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
  6. Clotfelter, Charles T., 1978. "Private security and the public safety," Journal of Urban Economics, Elsevier, vol. 5(3), pages 388-402, July.
  7. Nielsen, Søren Bo, 1998. "A simple model of commodity taxation and cross-border shopping," Working Papers 13-1998, Copenhagen Business School, Department of Economics.
  8. Fuest, Clemens & Huber, Bernd & Mintz, Jack, 2005. "Capital Mobility and Tax Competition," Foundations and Trends(R) in Microeconomics, now publishers, vol. 1(1), pages 1-62, December.
  9. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  10. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June Cita.
  11. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  12. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  13. Bond, Eric W & Samuelson, Larry, 1989. "Strategic Behaviour and the Rules for International Taxation of Capital," Economic Journal, Royal Economic Society, vol. 99(398), pages 1099-1111, December.
  14. Clotfelter, Charles T, 1977. "Public Services, Private Substitutes, and the Demand for Protection against Crime," American Economic Review, American Economic Association, vol. 67(5), pages 867-77, December.
  15. Brito, Dagobert L & Oakland, William H, 1980. "On the Monopolistic Provision of Excludable Public Goods," American Economic Review, American Economic Association, vol. 70(4), pages 691-704, September.
  16. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
  17. Laux-Meiselbach, Wolfgang, 1988. "Impossibility of exclusion and characteristics of public goods," Journal of Public Economics, Elsevier, vol. 36(1), pages 127-137, June.
  18. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
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Citations

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Cited by:
  1. Clemens Fuest & Martin Kolmar, 2013. "Endogenous free riding and the decentralized user-fee financing of spillover goods in a n-region economy," International Tax and Public Finance, Springer, vol. 20(2), pages 169-191, April.
  2. Jakobsson, Niklas & Nordblom, Katarina, 2009. "Intergovernmental grants and fiscal competition," Working Papers in Economics 338, University of Gothenburg, Department of Economics.
  3. George Economides & Apostolis Philippopoulos, 2012. "Are User Fees Really Regressive?," CESifo Working Paper Series 3875, CESifo Group Munich.

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