The Efficiency of “Benefit-Related” Business Taxes

Elisabeth Gugl and George Zodrow ()

No 1406, Working Papers from Oxford University Centre for Business Taxation

Abstract: Most of the tax competition literature focuses on the provision of local public services to households. However, a number of papers, dating back to Zodrow and Mieszkowski (1986), analyze tax competition when capital taxes are used to finance local public services provided to businesses, examining to which extent such services are provided efficiently, under-provided, or over-provided. In addition, several prominent observers have noted that “benefit-related” business taxation is desirable on efficiency and equity grounds and argued that such taxation should take the form of a production tax, such as an origin-based value added tax. We evaluate this contention in this paper, comparing within the context of a model of interjurisdictional competition the relative efficiency properties of business taxes that are assessed on production to those assessed on capital. We also provide a brief review of the literature on capital tax competition when public services are provided to businesses.

Keywords: business public services; infrastructure; tax competition; capital taxes (search for similar items in EconPapers)
JEL-codes: H11 H21 H41 H42 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mfd, nep-pbe, nep-pub and nep-ure
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