William H. Oakland

Theory of public goods

Publisher Summary This chapter discusses the class of goods that has come to be known as “public goods” or “collective goods.” A distinctive characteristic of such goods is that they are not used up in the process of being consumed or utilized as an input in a production process. To be considered public, a good must also be of interest to more than one consumer or firm. Otherwise, the fact that the consumption possibilities of others are undiminished is irrelevant. The chapter presents the derivation and interpretation of the efficiency conditions for pure public goods. The positive issues of the way the private market arrangements provide for public goods are discussed in the chapter. The chapter describes alternative mechanisms for making public goods decisions within the public sector. Public goods are of particular relevance to public policy, because they tend to be inefficiently provided by private arrangements, such as the market mechanism. The category of public “goods” is considered as opposed to public “bads.” Because they are not used up in the act of consumption of production, the marginal cost of extending service to additional users is zero. Private provision of the good, however, necessitates revenues from users to defray the cost of producing the good. Such charges usually lead some potential users to forgo consumption, creating a deadweight efficiency loss.

The taxation of mobile capital by central cities

Abstract This paper examines the properties of capital taxation within a metropolitan environment. It is demonstrated that when the boundaries of the central city jurisdiction fail to incorporate the entire metropolitan community, the central city can redistribute wealth from suburban land-owners to its residents. In effect, the central city can exploit its suburbs. It does so through capital tax or subsidy policies which reduce employment opportunities in the metropolis. Hence, central city fiscal policy will have an anti-development bias. It is also shown that, unlike most models of fiscal competition, the fear of capital outflight will not necessarily lead to the underprovision of public services. Under some circumstances, public services may actually be overprovided.

The Benefit Principle as a Preferred Approach to Taxing Business in the Midwest

State-local tax policies to encourage growth and development have been roundly criticized as detrimental to social welfare. In response, recent proposals have included delimiting the ability of states and localities to fashion tax policies. Not only are such proposals unworkable, but they fail to harness the creative energy and ideas of development practitioners because they act competitively to foster growth and development. The authors propose an alternative basis on which to fashion state-local taxation of business—that is, the so-called benefit principle—which aligns business taxes with costs of government services received by business entities.

Double taxation and tax deduction: A comparison

This paper examines the impact on capital flows and economic welfare of alternative domestic income tax policies toward foreign income tax payments, in a setting of international tax competition. In particular, we compare a system of full deductibility from taxable income with one that provides no allowance for foreign taxes. It is found that the walfare of the capital exporting country is always greater without deductibility than with it. Contrary to intuition, moreover, equilibrium capital flows and world income are also greater without deductibility. These findings extend the results of a recent contribution by Bond and Samuelson who compared tax deductibility with tax credits. The results underscore the importance of the general equilibrium approach for the proper evaluation of important tax policy alternatives.