American Economic Review Vol. 90 No. 1 2000
Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition
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.
- DOI
- 10.1257/aer.90.1.73
- Volume
- 90
- Issue
- 1
- Pages
- 73-95
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref