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Education, Mobility of Labour and Tax Competition

  • Panu Poutvaara

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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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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  1. 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.
  2. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  3. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August.
  4. Hans-Werner Sinn, 1996. "Social insurance, incentives and risk taking," International Tax and Public Finance, Springer, vol. 3(3), pages 259-280, July.
  5. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  6. Sinn, Hans-Werner, 1994. "How Much Europe? Subsidiarity, Centralization and Fiscal Competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(1), pages 85-107, February.
  7. Wildasin, David E, 1992. "Relaxation of Barriers to Factor Mobility and Income Redistribution," Public Finance = Finances publiques, , vol. 47(Supplemen), pages 216-30.
  8. 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.
  9. 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.
  10. Wellisch, Dietmar & Wildasin, David E., 1996. "Decentralized income redistribution and immigration," European Economic Review, Elsevier, vol. 40(1), pages 187-217, January.
  11. 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.
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