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Productivity‐enhancing public investment and benefit taxation: the case of factor‐augmenting public inputs

Author

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  • James P. Feehan
  • Mutsumi Matsumoto

Abstract

Government expenditure on public inputs such as human capital formation and public infrastructure can significantly affect productivity. An interesting and highly relevant policy question is whether such expenditure should be financed according to the benefit‐taxation principle. Focusing on factor‐augmenting public inputs, in this paper we derive the specification of the appropriate set of benefit taxes. Rather than fall on industries according to the degree to which the public input increases their productivities, these taxes must take the form of differential taxes on factor incomes. JEL Classification: H21, H54 Les investissements publics accroissant la productivité et l'imposition des avantages: le cas des intrants publics qui augmentent la productivité des facteurs de production. Les dépenses gouvernementales en intrants publics comme la formation de capital humain ou les infrastructures publiques peuvent affecter de manière significative la productivité. Une question intéressante et pertinente de politique publique est de savoir si des telles dépenses devraient être financées à l'aide d'un impôt sur les avantages ainsi dérivés. Mettant l'accent sur les intrants publics qui augmentent la productivité des facteurs, ce mémoire définit la spécification des impôts appropriés sur les avantages tirés de l'investissement public. Plutôt que de retomber sur les industries selon le degré d'accroissement de productivité qui s'ensuit, ces impôts doivent prendre la forme de taxes différentielles sur les revenus des divers facteurs de production.

Suggested Citation

  • James P. Feehan & Mutsumi Matsumoto, 2000. "Productivity‐enhancing public investment and benefit taxation: the case of factor‐augmenting public inputs," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(1), pages 114-121, February.
    • Handle: RePEc:wly:canjec:v:33:y:2000:i:1:p:114-121
    DOI: 10.1111/0008-4085.00007
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    Cited by:

    1. James P. Feehan & Raymond G. Batina, 2007. "Labor and Capital Taxation with Public Inputs as Common Property," Public Finance Review, , vol. 35(5), pages 626-642, September.
    2. A. Sanchez & Diego Martinez, 2011. "Optimization in Non-Standard Problems. An Application to the Provision of Public Inputs," Computational Economics, Springer;Society for Computational Economics, vol. 37(1), pages 13-38, January.
    3. Satya Paul & Balbir S. Sahni & Bagala P. Biswal, 2004. "Public Infrastructure and the Productive Performance of Canadian Manufacturing Industries," Southern Economic Journal, John Wiley & Sons, vol. 70(4), pages 998-1011, April.
    4. Anwar, Sajid, 2006. "Provision of public infrastructure, foreign investment and welfare in the presence of specialisation-based external economies," Economic Modelling, Elsevier, vol. 23(1), pages 142-156, January.
    5. Roger R. Betancourt, 2005. "Institutions, Markets, and Economic Performance: Implications for Cuba," Annual Proceedings, The Association for the Study of the Cuban Economy, vol. 15.
    6. Elisabeth Gugl & George R. Zodrow, 2014. "The Efficiency of “Benefit-Related” Business Taxes," Working Papers 1406, Oxford University Centre for Business Taxation.
    7. Aronsson, Thomas & Koskela, Erkki, 2009. "Outsourcing, Public Input Provision and Policy Cooperation," Umeå Economic Studies 799, Umeå University, Department of Economics.
    8. Robert Scherf & Matthew Weinzierl, 2020. "Understanding Different Approaches to Benefit‐Based Taxation," Fiscal Studies, John Wiley & Sons, vol. 41(2), pages 385-410, June.
    9. Derek K. Kellenberg, 2007. "The Provision Of Public Inputs And Foreign Direct Investment," Contemporary Economic Policy, Western Economic Association International, vol. 25(2), pages 170-184, April.
    10. Elisabeth Gugl & George R. Zodrow, 2019. "Tax competition and the efficiency of “benefit-related” business taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(3), pages 486-505, June.
    11. repec:ebl:ecbull:v:8:y:2004:i:3:p:1-9 is not listed on IDEAS
    12. Akihiko Yanase & Makoto Tawada, 2012. "History‐Dependent Paths And Trade Gains In A Small Open Economy With A Public Intermediate Good," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 303-314, February.
    13. Diego Martinez-Lopez, 2004. "The optimal provision of public inputs in a second best scenario," Economics Bulletin, AccessEcon, vol. 8(3), pages 1-9.
    14. Craig Brett & John A. Weymark, 2009. "Comparative Statics of Optimal Nonlinear Income Taxation in the Presence of a Publicly Provided Input," Vanderbilt University Department of Economics Working Papers 0910, Vanderbilt University Department of Economics.
    15. Anwar, Sajid, 2008. "Labour supply, foreign investment and welfare in the presence of public infrastructure," Economic Modelling, Elsevier, vol. 25(5), pages 959-967, September.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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