Taxing Human Capital Efficiently when Qualified Labour is Mobile

Wolfram Richter and Lars Kunze

No 3366, CESifo Working Paper Series from CESifo

Abstract: The paper studies the effect that skilled labour mobility has on efficient education policy. The model is one of two periods in which a representative taxpayer decides on labour, education, and saving. The government can only use linear tax and subsidy instruments. It is shown that the mobility of skilled labour well constrains government’s choice of policy instruments. The mobility does not however affect second best education policy in allocational terms. In particular, education should be effectively subsidized if, and only if, the elasticity of the earnings function is increasing in education. This rule applies regardless of whether labour is mobile or immobile.

Keywords: mobile labour; second-best efficient taxation; linear instruments; residence vs. source principle (search for similar items in EconPapers)
JEL-codes: H21 I28 J24 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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