Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition

David Wildasin

American Economic Review, 2000, vol. 90, issue 1, 73-95

Abstract: This paper presents a general-equilibrium model where human capital investment increases specialization and exposes skilled workers to region-specific earnings risk Interjurisdictional mobility of skilled labor mitigates these risks; state-contingent migration of skilled labor also improves efficiency. With perfect capital markets, labor-market integration raises welfare and reduces ex post earnings inequality. If instead human capital investment can only be financed through local taxes, labor-market integration leads to interjurisdictional fiscal competition, shifting the burden of taxation to low-skilled immobile workers. Decentralized public provision of human capital investment creates earnings inequalities and is inefficient.

JEL-codes: J24 J31 J61 R23 (search for similar items in EconPapers)
Date: 2000
Note: DOI: 10.1257/aer.90.1.73
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Citations: View citations in EconPapers (95)

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