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Education, Mobility of Labour and Tax Competition

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  • Panu Poutvaara

Abstract

We show that wage-taxfinanced subsidies encourage investment in risky education andoffer welfare gains. Tax competition and labour mobility maylead to substantial erosion of regional taxation. On the otherhand, mobility insures against region-specific shocks encouraginginvestment in education. Thus, welfare effects on the educatedand the owners of the fixed factor may go in either direction.Tax competition is especially fierce if the governments careabout the owners of the fixed factor. Elimination of their interestsfrom the governments' objective functions results in a Pareto-improvementin a federation with tax competition. Copyright Kluwer Academic Publishers 2000

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 7 (2000)
Issue (Month): 6 (December)
Pages: 699-719

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:6:p:699-719

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: education subsidies; optimal taxation; tax competition; fiscal federalism;

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  1. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
  2. Wildasin, D.E., 1991. "Ralaxation of Barriers to factor Mobilty and Income Redistribution," Papers 92-009, Indiana - Center for Econometric Model Research.
  3. 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.
  4. Sinn, Hans-Werner, 1994. "How much Europe? Subsidiarity, centralization and fiscal competition," Munich Reprints in Economics 19838, University of Munich, Department of Economics.
  5. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August.
  6. Brennan,Geoffrey & Buchanan,James M., 1980. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521233293, April.
  7. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  8. Hans-Werner Sinn, 1996. "Social insurance, incentives and risk taking," International Tax and Public Finance, Springer, vol. 3(3), pages 259-280, July.
  9. 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.
  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. Wellisch, Dietmar & Wildasin, David E., 1996. "Decentralized income redistribution and immigration," European Economic Review, Elsevier, vol. 40(1), pages 187-217, January.
  12. 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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