International Tax and Public Finance

, Volume 7, Issue 6, pp 699–719

Education, Mobility of Labour and Tax Competition

  • Panu Poutvaara

DOI: 10.1023/A:1008733527427

Cite this article as:
Poutvaara, P. International Tax and Public Finance (2000) 7: 699. doi:10.1023/A:1008733527427


We show that wage-taxfinanced subsidies encourage investment in risky education andoffer welfare gains. Tax competition and labour mobility maylead to substantial erosion of regional taxation. On the otherhand, mobility insures against region-specific shocks encouraginginvestment in education. Thus, welfare effects on the educatedand the owners of the fixed factor may go in either direction.Tax competition is especially fierce if the governments careabout the owners of the fixed factor. Elimination of their interestsfrom the governments' objective functions results in a Pareto-improvementin a federation with tax competition.

education subsidiesoptimal taxationtax competitionfiscal federalism

Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • Panu Poutvaara

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