Tax base erosion refers to the reduction in the taxable income or revenue that a government can collect due to various factors such as tax exemptions, deductions, and shifting of profits to lower-tax jurisdictions. This phenomenon significantly affects local governments and state-local fiscal relations as it limits the revenue that can be generated to fund public services. Tax base erosion impacts how effectively states can implement their tax policies, leading to potential inequalities in service delivery and financial health across different regions.
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