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Human Capital Investment and Globalization in Extortionary States

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  • Fredrik Andersson
  • Kai A. Konrad

Abstract

This paper considers education investment and public education policy in closed and open economies with an extortionary government. The extortionary government in a closed economy chooses an education policy in order to overcome a hold-up problem of time-consistent taxation similar to benevolent governments. The two types of government differ in their education policies if highly productive labor is mobile. Extortionary governments‘ incentives for a policy that stimulates higher private education efforts vanish; instead they have incentives to prevent individuals from mobility-increasing education investment. Tax competition therefore reduces hold-up problems of time-consistent extortionary taxation, but introduces other distortions that reduce workers' utility.

Suggested Citation

  • Fredrik Andersson & Kai A. Konrad, 2002. "Human Capital Investment and Globalization in Extortionary States," CESifo Working Paper Series 703, CESifo.
    • Handle: RePEc:ces:ceswps:_703
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    More about this item

    Keywords

    migration; education; globalization; commitment; time consistent income taxation; globalisation;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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