Abstract
This paper analyzes the effect of increasing human-capital mobility—i.e. student and labor mobility—on net tax revenues when revenue-maximizing governments compete for human capital by means of income tax rates and amenities offered to students (positive expenditure) or rather tuition fees (negative expenditure). An increase in labor mobility implies neither an intensified tax competition nor an erosion of revenues. In fact, the equilibrium tax rate even increases in labor mobility. Amenities offered to students are non-monotonically related to labor mobility; overall, net revenues increase with labor mobility. An increase in student mobility, however, erodes revenues, mainly due to intensified tax competition. A concurrent cutback in expenditures mitigates this erosion but cannot fully prevent it.
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The authors would like to thank Panu Poutvaara, Bjarne Strøm, Bernd Genser, Dirk Schindler, Reinhold Schnabel, two anonymous referees, and the editor for their most valuable comments and suggestions. The paper also benefited from discussions at the EPCS meeting in Jena, the IIPF congress in Maastricht, the joint EEA/ESEM congress in Milan, the conference of the German Economic Association in Graz, the BevOeA in Bamberg, at CES in Munich and seminars at the Universities of Konstanz and Paderborn. Thomas Lange gratefully acknowledges financial support from the German Research Foundation DFG (research group “Heterogeneous Labor”) and Fritz Thyssen Stiftung.
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Krieger, T., Lange, T. Education policy and tax competition with imperfect student and labor mobility. Int Tax Public Finance 17, 587–606 (2010). https://doi.org/10.1007/s10797-010-9129-9
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DOI: https://doi.org/10.1007/s10797-010-9129-9