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Empirica

, Volume 35, Issue 2, pp 129–143 | Cite as

Should mobile capital pay for public infrastructure investment?

  • Kersten Kellermann
Original Paper

Abstract

The paper contributes to the discussion of fiscal competition with infrastructure goods. We explicitly focus on the costs of providing public infrastructure capital that appear in the public budget as investment. Thus we analyse the problem in a dynamic framework. Public infrastructure is considered as a marginal product complement to private capital. A central result of the model is that the fact that public capital is a complement to private capital, so that an increase in the supply of public capital ceteris paribus improves the marginal productivity of private capital, cannot be used as an argument to support a source tax. The so-called indirect productivity effect on private capital induced by public inputs does not justify the taxation of mobile capital. Rather, the efficiency of a source tax on mobile capital income depends on the question of whether or not the public input generates a factor rent to private capital.

Keywords

Fiscal competition Public inputs Infrastructure 

JEL-Classifications

H21 H73 

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Copyright information

© Springer Science+Business Media, BV 2007

Authors and Affiliations

  1. 1.Center of Public FinanceUniversity of FribourgFribourgSwitzerland
  2. 2.VaduzLiechtenstein

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