Earmarked Taxation for Financing Public Investments Projects

This paper deals with the earmarked taxation employed by local governments for financing public investments projects carried on with some Public-Private Partnerships configurations. First, we analyse the theoretical profiles of earmarked taxation by using the tax-benefit approach, and the theory of political competition and accountability. Second, on the ground of the P-P-P literature, we examine the trade-off between financing mechanisms based on public subsidies to the concessionaire firm, financed by a earmarked tax, and mechanisms based on users-fees. Then, we discuss cases where the first solution turns out to be, even partially, preferred. Finally, we consider the potential role of earmarked taxation on the Italian institutional context, emerging from the recent legislation on fiscal federalism and municipalities taxation. Keywords: Earmarked taxes, cost of public funds, subsidies, public investments JEL Classification: H23, H54, H71, R42