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Human capital investment and globalization in extortionary states

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  • Andersson, Fredrik
  • Konrad, Kai A.

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. -- In der Arbeit untersuchen wir private und öffentliche Humankapitalinvestitionsentscheidungen in geschlossenen und offenen Volkswirtschaften. Wir unterstellen für die Analyse eine stark eigennutzorientierte Regierung, die versucht, die Nettosteuereinnahmen zu maximieren und diese Einnahmen für Zwecke verausgabt, die nicht den Nutzen der Staatsbürger mehren. Es zeigt sich, dass auch eine solche Regierung in einer geschlossenen Volkswirtschaft öffentliche Bildungsinvestitionen tätigt bzw. private Bildungsinvestitionen subventioniert, weil sie damit ein Problem mangelnder staatlicher Selbstbindung löst. Wir betrachten dann offene Volkswirtschaften, in denen die gutausgebildeten und produktiven Individuen international mobil sind. In der resultierenden Steuerwettbewerbssituation verzichten eigennutzorientierte Regierungen auf öffentliche Bildungsinvestitionen und Bildungssubventionen und versuchen unter Umständen sogar, private Bildungsinvestitionen zu behindern.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number FS IV 02-01.

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Date of creation: 2002
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Handle: RePEc:zbw:wzbmpg:fsiv0201

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Keywords: Migration; education; globalization; commitment; time consistent income taxation;

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References

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  1. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 14(1), pages 49-68, August.
  2. 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).
  3. Panu Poutvaara & Vesa Kanniainen, 2000. "Why Invest in Your Neighbor? Social Contract on Educational Investment," International Tax and Public Finance, Springer, Springer, vol. 7(4), pages 547-562, August.
  4. Hans-Werner Sinn, 1995. "Social Insurance, Incentives, and Risk Taking," NBER Working Papers 5335, National Bureau of Economic Research, Inc.
  5. David E. Wildasin, 2000. "Factor mobility and fiscal policy in the EU: policy issues and analytical approaches," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(31), pages 337-378, October.
  6. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 79-91, May.
  7. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521027922.
  8. Poutvaara, Panu, 1999. "Federation's alternative tax constitutions and risky education," ZEW Discussion Papers 99-42, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Boadway, R. & Marchand, M., 1990. "The use of public expenditures for distributive purposes," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1990066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Martin C. McGuire & Mancur Olson Jr., 1996. "The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 72-96, March.
  11. Boadway, Robin & Marceau, Nicolas & Marchand, Maurice, 1996. "Investment in Education and the Time Inconsistency of Redistributive Tax Policy," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 63(250), pages 171-89, May.
  12. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers, Institute for Fiscal Studies W94/07, Institute for Fiscal Studies.
  13. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 17(2), pages 213-240, March.
  14. Gradstein, Mark, 2000. "An economic rationale for public education: The value of commitment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 45(2), pages 463-474, April.
  15. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, Elsevier, vol. 17(2), pages 181-211, March.
  16. Andersson, Fredrik & Konrad, Kai A., 2001. "Globalization and Human Capital Formation," IZA Discussion Papers 245, Institute for the Study of Labor (IZA).
  17. 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.
  18. Konrad, Kai A., 2001. "Privacy and time-consistent optimal labor income taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 79(3), pages 503-519, March.
  19. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, American Economic Association, vol. 70(4), pages 705-15, September.
  20. Moshe Justman & Jacques-Francois Thisse, 2000. "Local Public Funding of Higher Education When Skilled Labor is Imperfectly Mobile," International Tax and Public Finance, Springer, Springer, vol. 7(3), pages 247-258, May.
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