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Competition in Business Taxes and Public Services: Are Production-Based Taxes Superior to Capital Taxes?

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  • Elisabeth Gugl
  • George R. Zodrow

Abstract

Although most of the tax competition literature focuses on the provision of local public services to households, several papers analyze tax competition when capital taxes are used to finance local public services provided to businesses, examining the conditions under which such services are provided efficiently, under-provided, or over-provided. In addition, several prominent observers have noted that “benefitrelated” business taxation is desirable on both efficiency and equity grounds and argued that such taxation should take the form of a tax based on production, such as an origin-based value-added tax. We evaluate this contention in this paper, comparing the relative efficiency properties of these alternative business taxes. Our simulation results suggest that under many, but not all, circumstances it is more efficient to finance business public services with an origin-based production tax rather than a source-based capital tax.

Suggested Citation

  • Elisabeth Gugl & George R. Zodrow, 2015. "Competition in Business Taxes and Public Services: Are Production-Based Taxes Superior to Capital Taxes?," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(3S), pages 767-802, September.
    • Handle: RePEc:ntj:journl:v:68:y:2015:i:3s:p:767-802
    DOI: 10.17310/ntj.2015.3S.03
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    File URL: https://doi.org/10.17310/ntj.2015.3S.03
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    Cited by:

    1. Elisabeth Gugl & George R. Zodrow, 2019. "Tax competition and the efficiency of “benefit-related” business taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(3), pages 486-505, June.
    2. Feehan, James P. & Matsumoto, Mutsumi, 2017. "Optimal rationing of productive public services under tax competition," Economics Letters, Elsevier, vol. 151(C), pages 79-81.
    3. Mutsumi Matsumoto & Kota Sugahara, 2017. "A note on production taxation and public-input provision," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 59(2), pages 419-426, September.
    4. Gugl, Elisabeth & Zodrow, George R., 2019. "Tax Competition and the Efficiency of “Benefit-Related†Business Taxes," Working Papers 19-006, Rice University, Department of Economics.
    5. Ravil Akhmadeev & Tatiana Morozova & Olga Yurievna Voronkova & Alexey A. Sitnov, 2019. "Targets determination model for VAT risks mitigation at B2B marketplaces," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(2), pages 1197-1216, December.

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