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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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