A Second-Best Theory of Local Government Policy

Dietmar Wellisch and Jorg Hülshorst

International Tax and Public Finance, 2000, vol. 7, issue 1, 5-22

Abstract: This paper provides a model where a large number of small jurisdictions compete for mobile firms and households by supplying local public goods and factors. Jurisdictions only have an incomplete set of tax instruments at their disposal to achieve an efficient allocation. We derive second-best behavioral rules for local governments and extend optimal taxation results to the local level. Local governments distort locational decisions of mobile firms and households by taxing them above marginal congestion costs so as to balance relative locational distortions between taxes. The analysis also reveals that there is a systematic difference between the provision of local public goods and factors. While local public goods are provided according to the Samuelson rule in most situations considered, local public factors are undersupplied relative to this rule. Copyright Kluwer Academic Publishers 2000

Keywords: optimal taxation; local government finance (search for similar items in EconPapers)
Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://hdl.handle.net/10.1023/A:1008749628237 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:7:y:2000:i:1:p:5-22

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1023/A:1008749628237

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().