Optimal rationing of productive public services under tax competition

摘要

Oates and Schwab (1991) advocate capital-tax financing of public services that support the production process under the assumption that these services are rationed to private firms according to their capital employment. This paper makes the rationing scheme for public services endogenous and demonstrates that the Oates Schwab scheme is actually the optimal policy choice. We also consider the rationing scheme when labor taxation, instead of or in addition to capital taxation, is imposed. (C) 2016 Elsevier B.V. All rights reserved.