Tax competition: Quality and quantity of provision of public goods

Document Type: Original Article


Lecturer at IÉSEG school of management



The present study was an attempt to investigate local governments’ reaction to financing the quality of public goods provision. More especially, whether the local governments must tax the mobile capital or not was addressed. To this end, = Samuelson’s rule and the conditions under which the optimal allocation of resources for private and public goods were examined. The findings demonstrated that if local governments finance the public goods by taxing the households without varying their tax rate on capital, the optimality as defined by Samuelson’s rule, is constrained by the funding of the quality of public goods. However, taxing the capital modifies the Samuelson’s rule. Thus, there is a supplementary cost supported by the households linked to a distorting tax.


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