Human Capital Investment and Globalization in Extortionary States
23 Pages Posted: 3 Apr 2001
Date Written: April 2002
This paper considers education investment and public education policy in closed and open economies with an extortionary government. The extortionary government in a closed economy chooses an education policy in order to overcome a hold-up problem of time-consistent taxation similar to benevolent governments. The two types of government differ in their education policies if highly productive labor is mobile. Extortionary governments' incentives for a policy that stimulates higher private education efforts vanish; instead they have incentives to prevent individuals from mobility-increasing education investment. Tax competition therefore reduces hold-up problems of time-consistent extortionary taxation, but introduces other distortions that reduce workers' utility.
Keywords: Migration, Education, Globalization, Commitment, Time Consistent Income Taxation
JEL Classification: H21, H23
Suggested Citation: Suggested Citation