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In search of an appropriate tax base for local Leviathans

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  • Göbel, Jürgen

Abstract

The impact of local fiscal policy depends on the choice of the tax base. In this paper, we take four criteria to evaluate tax bases, namely: efficiency, simplicity, flexibility, and fairness. The results of such an evaluation depend on how we describe the involved agents. We construct a two stage model of a local economy with three types of agents: Leviathans, households, and housing firms. Each Leviathan seeks to maximize the surplus of his local fiscal budget. Each household seeks to maximize its life-time utility from three types of goods: composite private goods, housing, and local public goods. Each housing firm seeks to maximize its profits. In this model, we analyze the characteristics of four distinct tax bases: land rent, housing capital rent, housing sales, and housing property. In particular, we analyze the responses of the households, the housing firms, and the housing prices on a change of a specific tax rate. The results are used to evaluate each tax base with respect to our four criteria.

Suggested Citation

  • Göbel, Jürgen, 2009. "In search of an appropriate tax base for local Leviathans," MPRA Paper 13940, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13940
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    Keywords

    Leviathan; tax base; exit option; sensitivity analysis;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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