Applying the theory of yardstick competition to the schooling system, we show that it is optimal to have central tests of student achievement and to engage in benchmarking, because it raises the quality of teaching. This is true even if teachers´pay (defined in monetary terms) is not...

This paper analyses optimal taxation with an imperfect labor market. Unemployment results from the market power of a monopoly union that determines the wage unilaterally. The government provides a public good and raises revenue by taxing rent, labor and capital income. Labor is immobile while...