This paper provides an economic explanation for the increasing reliance of the state on revenue from user charges on excludable public goods. We develop a model with many identical countries. The government of each country levies a capital tax on the domestic production sector and supplies an excludable public good to heterogeneous households. Under immobile capital, the price on the public good is zero. Under mobile capital, in contrast, the countries engage in tax competition and each country chooses a strictly positive price on the public good. With quasi-linear preferences, the reliance on user charges is shown to increase as tax competition becomes more intensive.
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1172.
Find related papers by JEL classification: H41 - Public Economics - - Publicly Provided Goods - - - Public Goods H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Oakland, William H., 1987.
"Theory of public goods,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 9, pages 485-535
Elsevier.
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