Local Taxation, Private-Public Consumption Complementarity, and the Optimal Number of Jurisdictions

Gerasimos T. Soldatos

MPRA Paper from University Library of Munich, Germany

Abstract: Viewing local finances under the approach to private-public consumption complementarity, we conclude that foot voting and tax competition become extinct when the (capital) tax structure across jurisdictions is the one forging close ties between the burgher and his/her jurisdiction. Feeling the burgher attached to the local public goods offered and to the local business activity, prevents labor and capital relocation. The optimal number of jurisdictions is that which is conducive to the adoption of that local taxation that fosters such an attachment; taxation made possible by capitalizing upon private-public consumption complementarity. The intuitive appeal of this result is then contemplated within the broader framework of fiscal policymaking accommodative of citizen heterogeneity. In view of complementarity, there appears to be scope for decentralized treatment of citizen preferences via the localities, leaving the treatment of endowment differences to the central government

Keywords: Local taxation; Private-public consumption complementarity; Citizen heterogeneity; Burgher-community attachment (search for similar items in EconPapers)
JEL-codes: H71 H73 H79 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-pbe and nep-pub
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Published in Theoretical Economics Letters 9.4(2014): pp. 815-820

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