Tax Competition, Investment Irreversibility and the Provision of Public Goods
19 Pages Posted: 11 Jun 2013
Date Written: May 31, 2013
This article studies the effects of tax competition on the provision of public goods under business risk and partial irreversibility of investment. As will be shown, the provision of public goods changes over time and also depends on the business cycle. In particular, under source-based taxation, public goods can be optimally provided during a downturn, in the short term. The converse is true during a recovery, when they are underprovided. In the long term however, tax competition does not affect capital accumulation and therefore, the provision of public goods.
Keywords: irreversibility, risk, short- and long-term effects, tax competition
JEL Classification: H25, H32
Suggested Citation: Suggested Citation