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Tax competition and the determination of the quality of public goods

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  • Abdessalam, A. H.

Abstract

In this paper, the author analyzes the behavior of local governments in capital taxation when the financial choices in terms of the quality of public goods are made done by a central planner. More specifically, he asks the question of whether a local government has an interest in taxing the mobile factor in addition to the tax on representative households. Through a comparison of social welfare given the strategies chosen by local governments, the author shows that whatever the quality and cost of public goods, a local government always has an interest in taxing the mobile factor. This leads to a Nash equilibrium in the dominant strategy in their model.

Suggested Citation

  • Abdessalam, A. H., 2014. "Tax competition and the determination of the quality of public goods," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-20.
  • Handle: RePEc:zbw:ifweej:201412
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2014-12
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    References listed on IDEAS

    as
    1. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
    2. G. Donald Jud & James M. Watts, 1981. "Schools and Housing Values," Land Economics, University of Wisconsin Press, vol. 57(3), pages 459-470.
    3. Fatica, Serena, 2009. "Taxation and the quality of institutions: asymmetric effects on FDI," MPRA Paper 24179, University Library of Munich, Germany, revised Jun 2010.
    4. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March.
    5. Agnès Bénassy-Quéré & Lionel Fontagné & Amina Lahrèche-Révil, 2005. "How Does FDI React to Corporate Taxation?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(5), pages 583-603, September.
    6. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, vol. 29(2), pages 133-172, March.
    7. 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.
    8. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    9. Hoyt, William H & Jensen, Richard A, 2001. " Product Differentiation and Public Education," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(1), pages 69-93.
    10. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November.
    11. Henderson, J Vernon & Thisse, Jacques-François, 1997. "On the Strategic Community Development," CEPR Discussion Papers 1550, C.E.P.R. Discussion Papers.
    12. Todd M. Gabe & Kathleen P. Bell, 2004. "Tradeoffs between Local Taxes and Government Spending as Determinants of Business Location," Journal of Regional Science, Wiley Blackwell, vol. 44(1), pages 21-41.
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    More about this item

    Keywords

    Tax competition; public goods; quality; welfare; taxation;

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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