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Tax Competition, Investment Irreversibility and the Provision of Public Goods

Author

Listed:
  • Moretto Michele

    (University of Padova, Via 8 Febbraio 1848, 2,PadovaPD, Italy)

  • Vergalli Sergio

    (University of Brescia, Piazza del Mercato, 15,BresciaBS, Italy)

  • Panteghini Paolo M.

    (Università degli Studi di Brescia, Piazza del Mercato, 15,BresciaBS, Italy)

Abstract

This article studies the effects of tax competition on the provision of public goods under business risk and partial irreversibility of investment. As will be shown, the provision of public goods changes over time and also depends on the business cycle. In particular, under source-based taxation, in the short term, public goods can be optimally provided during a downturn. The converse is true during a recovery: in this case, they are underprovided. In the long term, however, tax competition does not affect capital accumulation. This means that the provision of public goods is unaffected by taxation.

Suggested Citation

  • Moretto Michele & Vergalli Sergio & Panteghini Paolo M., 2015. "Tax Competition, Investment Irreversibility and the Provision of Public Goods," German Economic Review, De Gruyter, vol. 16(4), pages 408-421, December.
    • Handle: RePEc:bpj:germec:v:16:y:2015:i:4:p:408-421
    DOI: 10.1111/geer.12058
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    Cited by:

    1. Giacomo Corneo & Sergio Vergalli, 2016. "Taxes, subsidies, regulation in dynamic models," Journal of Economics, Springer, vol. 119(2), pages 97-99, October.

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    More about this item

    Keywords

    Irreversibility; risk; short- and long-term effects; tax competition;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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