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The Race to the Bottom and its Impact on the Provision of Public Services in Romania

Adina Trandafir (), Petre Brezeanu () and Ana Petrina Stanciu ()
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Adina Trandafir: “Spiru Haret” University, Bucharest, Romania
Ana Petrina Stanciu: University of Petrosani, Romania

Annals of the University of Petrosani, Economics, 2011, vol. 11, issue 1, 261-266

Abstract: The literature is addressed by tax competition to attract capital and the measures taken in this regard. These measures aim, in most cases, reducing tax rates. Most authors, especially the classics, believes that this reduction creates an underprovision of goods and services and addresses the problem in terms of their level. Very few scholars have revealed that this race to the bottom lead to a different structure in delivering public services. Thus, from the idea of Keen-Marchand (1997), this paper addresses this issue, using as basic data in the Romanian economy, through a regression model. The analysis results show that the race to reduce the tax burden, in which Romania joined in the impact of tax competition, leads to an underprovision welfare services aimed directly at a taxpayer and those aimed at infrastructure overprovision.

Keywords: tax competition; tax rates; public services (search for similar items in EconPapers)
JEL-codes: H20 H71 (search for similar items in EconPapers)
Date: 2011
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