Contracting out: the importance of a level playing field
The levying of VAT in countries of the European Union creates significant distortions for local authorities in their decision-making on public provision and contracting out of public services. In several EU-countries, a refund of VAT to local governments eliminates this effect. Therefore, these schemes facilitate contracting out by local governments. In European countries with a refund scheme for the VAT costs of local governments or other ways to solve this distortion, contracting out refuse collection is relatively high compared to countries without. Moreover, the design of the scheme may have an effect on the tax rates of the included government sectors. A closed system financed by local governments only will lead to an increase of local tax rates.
|Keywords||Business taxes and subsidies, Firm|