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A Theory of User-Fee Competition

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  • Clemens Fuest
  • Martin Kolmar

Abstract

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.

Suggested Citation

  • Clemens Fuest & Martin Kolmar, 2004. "A Theory of User-Fee Competition," CESifo Working Paper Series 1166, CESifo.
    • Handle: RePEc:ces:ceswps:_1166
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    References listed on IDEAS

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    Cited by:

    1. Lisa Grazzini & Alessandro Petretto, 2017. "Spillover Effects in a Federal Country with Vertical Tax Externalities," Public Finance Review, , vol. 45(5), pages 701-720, September.
    2. George Economides & Apostolis Philippopoulos, 2024. "On the provision of excludable public goods: General taxes or user prices?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 71(3), pages 379-415, July.
    3. Brian Witt, 2019. "Tourists’ Willingness to Pay Increased Entrance Fees at Mexican Protected Areas: A Multi-Site Contingent Valuation Study," Sustainability, MDPI, vol. 11(11), pages 1-22, May.
    4. Que, Wei & Zhang, Yabin & Liu, Shaobo, 2018. "The spatial spillover effect of fiscal decentralization on local public provision: Mathematical application and empirical estimation," Applied Mathematics and Computation, Elsevier, vol. 331(C), pages 416-429.
    5. Economides, George & Philippopoulos, Apostolis & Sakkas, Stelios, 2017. "Tuition fees: User prices and private incentives," European Journal of Political Economy, Elsevier, vol. 48(C), pages 91-103.
    6. Jakobsson, Niklas & Nordblom, Katarina, 2009. "Intergovernmental grants and fiscal competition," Working Papers in Economics 338, University of Gothenburg, Department of Economics.
    7. George Economides & Apostolis Philippopoulos, 2012. "Are User Fees Really Regressive?," CESifo Working Paper Series 3875, CESifo.
    8. Martin Kolmar, 2015. "Costly Exclusion, Property-Rights Enforcement, and the Optimal Supply of Rival and Nonrival Goods," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 405-431, September.
    9. Clemens Fuest & Martin Kolmar, 2013. "Endogenous free riding and the decentralized user-fee financing of spillover goods in a n-region economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 169-191, April.

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    Keywords

    public goods; club goods; user fees; fiscal federalism;
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