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Federation's alternative tax constitutions and risky education

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  • Poutvaara, Panu

Abstract

We analyze a two-period modell where risk-averse students divide their time between risky education, leisure, and work. The educated can migrate. Wagetax financed transfer to students acts as an insurance, and increases both investment in education and demand for leisure. We drive sufficient conditions for tax competition to lead to too low wage tax rates. We suggest, that the educated should pay their wage taxes to the region which has financed their education. We show that this would increase taxation and investment in education, and would benefit also the owners of the complementary factor.

Suggested Citation

  • 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.
    • Handle: RePEc:zbw:zewdip:5255
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    References listed on IDEAS

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    1. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, vol. 14(3), pages 365-374, December.
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    8. Wildasin, David E, 1995. " Factor Mobility, Risk and Redistribution in the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 527-546, December.
    9. Konrad, Kai A., 1999. "Privacy, time consistent optimal labor income taxation and education policy," IZA Discussion Papers 82, Institute for the Study of Labor (IZA).
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    11. Panu Poutvaara, 2000. "Education, Mobility of Labour and Tax Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(6), pages 699-719, December.
    12. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-774, September.
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    Cited by:

    1. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
    2. Andersson, Fredrik & Konrad, Kai A., 2001. "Globalization and Human Capital Formation," IZA Discussion Papers 245, Institute for the Study of Labor (IZA).
    3. Andersson, Fredrik & Konrad, Kai A., 2003. "Human capital investment and globalization in extortionary states," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1539-1555, August.

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