Implications of Technological Advances for Revenue Assignment

• In Event: Future Challenges in Fiscal Federalism

Abstract

Abstract. Authors William F. Fox, University of Tennessee and George Zodrow, Rice University. Following a summary of the consensus among public sector economists regarding the long-standing issue of subnational tax assignment, we examine how technological advances in a rapidly evolving and increasing digital economy are altering the capacity of subnational governments to effectively impose some of their traditional broad-based taxes; we also discuss some structural reforms that might facilitate raising revenues using these tax instruments. These economic changes are currently more likely to affect larger cities and more developed countries, but they will eventually impact lower-income cities and countries as well. These changes will require many difficult policy decisions both within individual governments and in governmental interactions to yield workable subnational tax structures. Moreover, the accelerating pace of technological change creates pressures on governments to adapt more quickly than in the past – a potentially difficult task, given that history indicates that subnational revenue sources are typically changed very infrequently.

Authors

• Bill Fox, University of Tennessee

• George Zodrow, Rice Univ. Econ. Dept.

• Bill Fox, University of Tennessee