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

  • Adina Trandafir

    ()

    (“Spiru Haret” University, Bucharest, Romania)

  • Petre Brezeanu

    ()

    (Academy of Economic Studies, Bucharest, Romania)

  • Ana Petrina Stanciu

    ()

    (University of Petrosani, Romania)

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.

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Article provided by University of Petrosani, Romania in its journal Annals of the University of Petrosani - Economics.

Volume (Year): 11 (2011)
Issue (Month): 1 ()
Pages: 261-266

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Handle: RePEc:pet:annals:v:11:y:2011:i:1:p:261-266
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  1. KEEN, Michael & MARCHAND, Maurice, 1996. "Fiscal Competition and the Pattern of Public Spending," CORE Discussion Papers 1996001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  3. 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.
  4. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
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