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Human Capital Investment and Globalization in Extortionary States

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  • Andersson, Fredrik

    ()
    (Lund University)

  • Konrad, Kai A.

    ()
    (Max Planck Institute for Tax Law and Public Finance)

Abstract

This paper considers education investment and public education subsidies in closed and open economies with an extortionary government. The extortionary government in a closed economy has incentives to subsidize education 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 fully mobile. Extortionary governments’ incentives for education subsidies vanish and they even have an incentive to prevent individuals from mobility increasing education investment. Tax competition therefore reduces hold-up problems of time consistent extortionary taxation, but also introduces incentives that reduce workers’ utility.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 239.

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Length: 29 pages
Date of creation: Jan 2001
Date of revision:
Publication status: published in: Journal of Public Economics, 2003, 87 (7-8), 1539-1555
Handle: RePEc:iza:izadps:dp239

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Keywords: time consistent income taxation; commitment; migration; Globalization; education;

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References

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  1. Boadway, R. & Marchand, M., . "The use of public expenditures for redistributive purposes," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1131, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  3. Andersson, Fredrik & Konrad, Kai A, 2001. "Globalization and Human Capital Formation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2657, C.E.P.R. Discussion Papers.
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  14. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(2), pages 289-96, April.
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  16. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, Elsevier, vol. 40(1), pages 113-134, January.
  17. Mark Gradstein, 1999. "An Economic Rationale for Public Education: The Value of Commitment," CESifo Working Paper Series 209, CESifo Group Munich.
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