This paper examines the efficient provision of goods in two-sided markets and characterizes optimal specific and ad-valorem taxes. We show that (i) a monopoly may have too high output compared to the social optimum; (ii) output may be reduced by imposing negative value-added taxes (subsidy) or positive specific taxes.JEL Code: D4, D43, H21, H22, L13.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis paper presents empirical evidence of a positive effect of council size on government spending using a data set of 2,056 municipalities in the German state of Bavaria over a period of 21 years. We apply a regression discontinuity design to avoid an endogeneity bias. In particular, we exploit discontinuities in the legal rule that relates population size of a municipality to council size to identify a causal relationship between council size and public spending, and find a robust positive impact of council size on spending. Moreover, we show that municipalities primarily adjust current expenditure in response to a rise in council size.JEL classification: D7, H7, C2

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The paper empirically analyzes the incentive effects of equalizing transfers on business tax policy by exploiting a natural experiment in the state of Lower Saxony which changed its equalization formula as of 1999. We resort to within-state and across-state difference-indifference estimates to identify the reform effect on municipalities' business tax rates. Confirming the theoretical prediction, the reform had a significant impact on the municipalities' tax policy in the four years after the reform with a "phasing out" of the effect starting in the fourth to fifth year. The finding is robust to various alternative specifications. Terms of use: Documents in EconStor mayJEL Code: H71, H25.

This paper considers the relationship between tax competition and growth in an endogenous growth model where there are stochastic shocks to productivity, and capital taxes fund a public good which may be for …nal consumption or an infrastructure input. Absent stochastic shocks, decentralized tax setting (two or more jurisdictions) maximizes the rate of growth, as the constant returns to scale present with endogenous growth implies "extreme" tax competition. Stochastic shocks imply that households face a portfolio choice problem, which may dampen down tax competition and may raise taxes above the centralized level. Growth can be lower with decentralization. Our results also predict a negative relationship between output volatility and growth, consistent with the empirical evidence.

Previous literature widely assumes that taxes are optimized in local public finance while expenditures adjust residually. This paper endogenizes the choice of the optimization variable. In particular, it analyzes how federal policy toward local governments influences the way local governments decide on public policy. Unlike the presumption, the paper shows that local governments may choose to optimize over expenditures. The result most notably prevails when federal policy subsidizes local taxation. The results offer a new perspective of the efficiency implications of federal policy toward local governments and, thereby, enable a more precise characterization of local government behaviour in fiscal federalism.JEL Codes: H7, H3, H1