Endogenous Free Riding and the Decentralized User-Fee Financing of Spillover Goods in a n-Region Economy

Fuest, Clemens and Kolmar, Martin (2013) Endogenous Free Riding and the Decentralized User-Fee Financing of Spillover Goods in a n-Region Economy. International Tax and Public Finance, 20 (2). pp. 169-191.

Abstract

The paper analyzes the strategic effects of decentralized user-fee and enforcement policies for the financing of interregional spillover goods. We derive the equilibrium pricing and enforcement rules for a n-region economy.We show that under mild conditions on the pattern of substitution between spillover goods and contrary to the 2-region case, the decentralized equilibrium cannot be Pareto improved by coordinated policy changes. However, decentralized equilibria are suboptimal from the point of view of utilitarian welfare.We characterize the direction of the distortion for this case. The regions’ incentives for user-fee enforcement are ambiguous in general. With only two regions and if regions only charge non-residents, however, there is overinvestment in user-fee enforcement in the decentralized equilibrium. For the case of a Tullock enforcement function and linear demand for the spillover goods we show that welfare is u-shaped in a parameter that measures the technological advantage of user-fee enforcement.

Item Type: Article
Keywords: Public goods; Club goods; Contests; Fiscal federalism
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 19 Jul 2012 08:13
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3956

Actions (login required)

Edit View Edit View