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The Race to the Bottom and its Impact on the Provision of Public Services in Romania

Author

Listed:
  • Adina Trandafir

    () (“Spiru Haret” University, Bucharest, Romania)

  • Petre Brezeanu

    () (Academy of Economic Studies, Bucharest, Romania)

  • Ana Petrina Stanciu

    () (University of Petrosani, Romania)

Abstract

The literature is addressed by tax competition to attract capital and the measures taken in this regard. These measures aim, in most cases, reducing tax rates. Most authors, especially the classics, believes that this reduction creates an underprovision of goods and services and addresses the problem in terms of their level. Very few scholars have revealed that this race to the bottom lead to a different structure in delivering public services. Thus, from the idea of Keen-Marchand (1997), this paper addresses this issue, using as basic data in the Romanian economy, through a regression model. The analysis results show that the race to reduce the tax burden, in which Romania joined in the impact of tax competition, leads to an underprovision welfare services aimed directly at a taxpayer and those aimed at infrastructure overprovision.

Suggested Citation

  • Adina Trandafir & Petre Brezeanu & Ana Petrina Stanciu, 2011. "The Race to the Bottom and its Impact on the Provision of Public Services in Romania," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 11(1), pages 261-266.
  • Handle: RePEc:pet:annals:v:11:y:2011:i:1:p:261-266
    as

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    References listed on IDEAS

    as
    1. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
    2. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 269-304, June.
    3. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    4. 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.
    5. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    tax competition; tax rates; public services;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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