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Human Capital Investment and Globalization in Extortionary States

  • Andersson, Fredrik

    ()

    (Lund University)

  • Konrad, Kai A.

    ()

    (Max Planck Institute for Tax Law and Public Finance)

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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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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  1. Fredrik Andersson & Kai A. Konrad, 2002. "Human Capital Investment and Globalization in Extortionary States," CESifo Working Paper Series 703, CESifo Group Munich.
  2. Poutvaara, Panu & Kanniainen, Vesa, 2000. "Why invest in your neighbor? Social contract on educational investment," Munich Reprints in Economics 19797, University of Munich, Department of Economics.
  3. Wildasin, David E., 1999. "Factor mobility and fiscal policy in the EU: policy issues and analytical approaches," ZEW Discussion Papers 99-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  6. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers W94/07, Institute for Fiscal Studies.
  7. Gradstein, Mark, 2000. "An economic rationale for public education: The value of commitment," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 463-474, April.
  8. Jonathan Eaton & Harvey S. Rosen, 1979. "Taxation, Human Capital and Uncertainty," Working Papers 497, Princeton University, Department of Economics, Industrial Relations Section..
  9. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
  10. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
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  13. Andersson, Fredrik & Konrad, Kai A., 2001. "Globalization and Human Capital Formation," IZA Discussion Papers 245, Institute for the Study of Labor (IZA).
  14. 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, vol. 63(250), pages 171-89, May.
  15. Moshe Justman & Jacques-Francois Thisse, 2000. "Local Public Funding of Higher Education When Skilled Labor is Imperfectly Mobile," International Tax and Public Finance, Springer, vol. 7(3), pages 247-258, May.
  16. Konrad, Kai A., 2001. "Privacy and time-consistent optimal labor income taxation," Journal of Public Economics, Elsevier, vol. 79(3), pages 503-519, March.
  17. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 79-91, May.
  18. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  19. Patrick J. Kehoe, 1989. "Policy Cooperation Among Benevolent Governments May Be Undesirable," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 289-296.
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