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A Theory of User-Fee Competition

  • Clemens Fuest
  • Martin Kolmar

We develop a two-region model where the decentralized provision of spillover goods can be financed by means of taxes or user fees. In order to enforce the fees regions have to invest in exclusion. We show that a decentralized solution tends to be inefficient. There will be over-investment in exclusion and an underprovision of the spillover goods compared to a centralized solution. In addition the regions have strategic incentives to set user charges. If the regional spillover goods are substitutes user fees tend to be inefficiently low, whereas they tend to be inefficiently high if the spillover goods are complements.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-03/cesifo1_wp1166.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1166.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1166
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  1. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
  2. Ravi Kanbur & Michael Keen, 1991. "Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size," Working Papers 819, Queen's University, Department of Economics.
  3. Kurtis J. Swope & Eckhard Janeba, 2005. "Taxes or Fees? The Political Economy of Providing Excludable Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(3), pages 405-426, 08.
  4. MINTZ, Jack & TULKENS, Henry, . "Commodity tax competition between member states of a federation: equilibrium and efficiency," CORE Discussion Papers RP -693, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  6. Bond, E.W. & Samuelson, L., 1988. "Strategic Behavior And The Rules For International Taxation Of Capital," Papers 3-88-10, Pennsylvania State - Department of Economics.
  7. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
  8. Nielsen, Soren Bo, 2001. " A Simple Model of Commodity Taxation and Cross-Border Shopping," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 599-623, December.
  9. Laux-Meiselbach, Wolfgang, 1988. "Impossibility of exclusion and characteristics of public goods," Journal of Public Economics, Elsevier, vol. 36(1), pages 127-137, June.
  10. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  11. Hans-Werner Sinn, 2001. "The New Systems Competition," CESifo Working Paper Series 623, CESifo Group Munich.
  12. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
  13. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  14. Fuest, Clemens & Huber, Bernd & Mintz, Jack, 2005. "Capital Mobility and Tax Competition," Foundations and Trends(R) in Microeconomics, now publishers, vol. 1(1), pages 1-62, December.
  15. Fraser, Clive D., 1996. "On the provision of excludable public goods," Journal of Public Economics, Elsevier, vol. 60(1), pages 111-130, April.
  16. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  17. Brito, Dagobert L & Oakland, William H, 1980. "On the Monopolistic Provision of Excludable Public Goods," American Economic Review, American Economic Association, vol. 70(4), pages 691-704, September.
  18. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  19. 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.
  20. Clotfelter, Charles T., 1978. "Private security and the public safety," Journal of Urban Economics, Elsevier, vol. 5(3), pages 388-402, July.
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