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Education, mobility of labour and tax competition

  • Poutvaara, Panu

We show that wage-tax financed subsidies encourage investment in riskyeducation and offer welfare gains. Tax competition and labour mobilitymay lead to substantial erosion of regional taxation. On the other hand,mobility insures against region-specific shocks encouraging investmentin education. Thus, welfare effects on the educated and the owners ofthe fixed factor may go in either direction. Tax competition isespecially fierce if the governments care about the owners of the fixedfactor. Elimination of their interests from the governments’ objectivefunctions results in a Pareto-improvement in a federation with taxcompetition.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19303.

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Date of creation: 2000
Date of revision:
Publication status: Published in International Tax and Public Finance 6 7(2000): pp. 699-719
Handle: RePEc:lmu:muenar:19303
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  1. 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.
  2. Wildasin, D.E., 1991. "Ralaxation of Barriers to factor Mobilty and Income Redistribution," Papers 92-009, Indiana - Center for Econometric Model Research.
  3. repec:cup:cbooks:9780521027922 is not listed on IDEAS
  4. Wildasin, D.E., 1992. "Income Restribution and Migration," Papers 92-003, Indiana - Center for Econometric Model Research.
  5. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  6. Sinn, Hans-Werner, 1996. "Social Insurance, Incentives and Risk Taking," Munich Reprints in Economics 19834, University of Munich, Department of Economics.
  7. 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.
  8. 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.
  9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  10. 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.
  11. 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.
  12. Hans-Werner Sinn, 1995. "Social Insurance, Incentives, and Risk Taking," NBER Working Papers 5335, National Bureau of Economic Research, Inc.
  13. Sinn, Hans-Werner, 1994. "How much Europe? Subsidiarity, centralization and fiscal competition," Munich Reprints in Economics 19838, University of Munich, Department of Economics.
  14. Wellisch, Dietmar & Wildasin, David E., 1996. "Decentralized income redistribution and immigration," European Economic Review, Elsevier, vol. 40(1), pages 187-217, January.
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