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Taxing Human Capital Efficiently when Qualified Labour is Mobile

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  • Wolfram F. Richter
  • Lars Kunze

Abstract

The paper studies the effect that skilled labour mobility has on efficient education policy. The model is one of two periods in which a representative taxpayer decides on labour, education, and saving. The government can only use linear tax and subsidy instruments. It is shown that the mobility of skilled labour well constrains government’s choice of policy instruments. The mobility does not however affect second best education policy in allocational terms. In particular, education should be effectively subsidized if, and only if, the elasticity of the earnings function is increasing in education. This rule applies regardless of whether labour is mobile or immobile.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-02/cesifo1_wp3366.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3366.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3366

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Related research

Keywords: mobile labour; second-best efficient taxation; linear instruments; residence vs. source principle;

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References

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  1. Wolfram F. Richter, 2009. "Taxing Education in Ramsey's Tradition," CESifo Working Paper Series 2586, CESifo Group Munich.
  2. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
  3. James Heckman & Pedro Carneiro, 2003. "Human Capital Policy," NBER Working Papers 9495, National Bureau of Economic Research, Inc.
  4. 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.
  5. Bas Jacobs & Lans Bovenberg, 2008. "Optimal Taxation of Human Capital and theEarnings Function," CESifo Working Paper Series 2250, CESifo Group Munich.
  6. Stark, Oded & Wang, Yong, 2001. "Inducing Human Capital Formation: Migration as a Substitute for Subsidies," Economics Series 100, Institute for Advanced Studies.
  7. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
  8. A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
  9. Wolfram F. Richter, 2010. "Efficient Education Policy - A Second-Order Elasticity Rule," CESifo Working Paper Series 2969, CESifo Group Munich.
  10. Andersson, Fredrik & Konrad, Kai A., 2002. "Human capital investment and globalization in extortionary states," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-01, Social Science Research Center Berlin (WZB).
  11. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June Cita.
  12. 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.
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Cited by:
  1. Wolfram F. Richter & Berthold U. Wigger, 2012. "Besteuerung des Humanvermögens," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(1-2), pages 82-102, 02.

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