In this contribution, we analyze the provision of productive infrastructure goods (e. g. traffic facilities or results of scientific research) in the context of international tax competition for foreign direct investments (FDI). Mostly, these public inputs have two characteristics: on the one hand, firms who are unwilling to pay a user fee can be excluded. On the other hand, congestion externalities arise if many firms occupy the infrastructure good at the same time.
We find out that local governments competing for international mobile capital should implement a user fee as an additional policy parameter in order to maintain efficiency. Otherwise, if local governments rely on a source-based tax on capital and a non-distortionary tax on local labour only, the decentralized equilibrium is socially inefficient. The derived condition for the optimal use of the available infrastructure is not fulfilled and firms will over-use the infrastructure. If, in addition, firms are charged a user fee, the decentralized equilibrium can be shown to be efficient. However, a selffinancing of infrastructure goods by user fees cannot be expected.
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