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Alternative tax constitutions and risky education in a federation

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  • Poutvaara, Panu

Abstract

I analyze a two-period model in which risk-averse students divide their time between risky education, leisure, and work. The educated can migrate. Wage-tax financed transfer to students acts as an insurance, and increases both human capital investment and demand for leisure. I derive sufficient conditions for tax competition to lead to inefficiently low wage tax rates. I suggest that the educated should pay their wage taxes to the region which has financed their education. I show that this would increase taxation and human capital investment, and would also benefit the owners of the complementary factor.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 31 (2001)
Issue (Month): 2-3 (April)
Pages: 355-377

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Handle: RePEc:eee:regeco:v:31:y:2001:i:2-3:p:355-377

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  1. Dixit, Avinash K & Sandmo, Angar, 1977. " Some Simplified Formulae for Optimal Income Taxation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(4), pages 417-23.
  2. Wildasin, D.E., 1991. "Ralaxation of Barriers to factor Mobilty and Income Redistribution," Papers 92-009, Indiana - Center for Econometric Model Research.
  3. Panu Poutvaara & Vesa Kanniainen, 2000. "Why Invest in Your Neighbor? Social Contract on Educational Investment," International Tax and Public Finance, Springer, vol. 7(4), pages 547-562, August.
  4. Wildasin, David E, 1995. " Factor Mobility, Risk and Redistribution in the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 527-46, December.
  5. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March.
  6. Poutvaara, Panu, 2000. "Education, mobility of labour and tax competition," Munich Reprints in Economics 19303, University of Munich, Department of Economics.
  7. David E. WILDASIN, 1997. "Income Distribution and Redistribution Within Federations," Annales d'Economie et de Statistique, ENSAE, issue 45, pages 291-313.
  8. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Munich Reprints in Economics 19854, University of Munich, Department of Economics.
  9. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
  10. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  11. Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-88, June.
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Cited by:
  1. Delpierre, Matthieu & Verheyden, Bertrand, 2014. "Student and worker mobility under university and government competition," Journal of Public Economics, Elsevier, vol. 110(C), pages 26-41.
  2. Oliver Busch & Benjamin Weigert, 2010. "Where have all the graduates gone? Internal cross-state migration of graduates in Germany 1984–2004," The Annals of Regional Science, Springer, vol. 44(3), pages 559-572, June.
  3. Haupt, Alexander, 2012. "The evolution of public spending on higher education in a democracy," European Journal of Political Economy, Elsevier, vol. 28(4), pages 557-573.
  4. Kreider, Brent, 2008. "Optimal Wage Taxation When Human Capital and Employment Are Endogenous," Staff General Research Papers 12358, Iowa State University, Department of Economics.
  5. Panu Poutvaara, 2004. "Public Education in an Integrated Europe: Studying for Migration and Teaching for Staying?," Public Economics 0406006, EconWPA.
  6. Alexander Kemnitz, 2010. "Educational Federalism and the Quality Effects of Tuition Fees," CESifo Working Paper Series 3193, CESifo Group Munich.
  7. Panu Poutvaara, 2004. "Educating Europe," CESifo Working Paper Series 1114, CESifo Group Munich.
  8. Thomas Lange, 2008. "Local Public Funding of Higher Education when Students and Skilled Workers are Mobile," Working Papers CIE 11, University of Paderborn, CIE Center for International Economics.
  9. Thushyanthan Baskaran & Zohal Hessami, 2012. "Public education spending in a globalized world:," International Tax and Public Finance, Springer, vol. 19(5), pages 677-707, October.
  10. Maria Racionero & Elena Del Rey, 2012. "Choosing the type of income-contingent loan: risk-sharing versus risk-pooling," CEPR Discussion Papers 671, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  11. Thushyanthan Baskaran & Zohal Hessami, 2011. "Public Education Spending in a Globalized World: Is there a Shift in Priorities Across Educational Stages?," Working Paper Series of the Department of Economics, University of Konstanz 2011-42, Department of Economics, University of Konstanz.
  12. Tim Krieger & Thomas Lange, 2010. "Education policy and tax competition with imperfect student and labor mobility," International Tax and Public Finance, Springer, vol. 17(6), pages 587-606, December.

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