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Optimal rationing of productive public services under tax competition

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  • Feehan, James P.
  • Matsumoto, Mutsumi

Abstract

Oates and Schwab (1991) advocate capital-tax financing of public services that support the production process under the assumption that these services are rationed to private firms according to their capital employment. This paper makes the rationing scheme for public services endogenous and demonstrates that the Oates–Schwab scheme is actually the optimal policy choice. We also consider the rationing scheme when labor taxation, instead of or in addition to capital taxation, is imposed.

Suggested Citation

  • Feehan, James P. & Matsumoto, Mutsumi, 2017. "Optimal rationing of productive public services under tax competition," Economics Letters, Elsevier, vol. 151(C), pages 79-81.
    • Handle: RePEc:eee:ecolet:v:151:y:2017:i:c:p:79-81
    DOI: 10.1016/j.econlet.2016.12.003
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    References listed on IDEAS

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    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. Matsumoto, Mutsumi & Feehan, James P., 2010. "Capital-tax financing and scale economies in public-input production," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 116-121, May.
    3. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
    4. Elisabeth Gugl & George R. Zodrow, 2015. "Competition in Business Taxes and Public Services: Are Production-Based Taxes Superior to Capital Taxes?," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(3S), pages 767-802, September.
    5. Timothy J. Bartik, 2004. "Evaluating the Impacts of Local Economic Development Policies on Local Economic Outcomes: What Has Been Done and What Is Doable?," Book chapters authored by Upjohn Institute researchers, in: Evaluating Local Economic and Employment Development: How to Access Waht Works Among Programmes and Policies, pages 113-142, W.E. Upjohn Institute for Employment Research.
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    More about this item

    Keywords

    Productive public services; Rationing; Tax competition; Benefit taxation;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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