Alternative Tax Constitutions and Risky Education in a Federation

Posted: 8 Apr 2003

See all articles by Panu Poutvaara

Panu Poutvaara

University of Helsinki - Department of Economics; Helsinki Center of Economic Research (HECER); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Abstract

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

Keywords: Fiscal federalism, Tax competition, Optimal taxation, Education subsidies, Tax constitution

JEL Classification: H87, I22, H21

Suggested Citation

Poutvaara, Panu, Alternative Tax Constitutions and Risky Education in a Federation. Available at SSRN: https://ssrn.com/abstract=393680

Panu Poutvaara (Contact Author)

University of Helsinki - Department of Economics ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

HOME PAGE: http://www.valt.helsinki.fi/blogs/poutvaar/

Helsinki Center of Economic Research (HECER) ( email )

FI-00014 Helsinki
Finland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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