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Local Public Funding of Higher Education when Students and Skilled Workers are Mobile

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  • Thomas Lange

    ()
    (University of Konstanz, ifo Institute for Economic Research Munich & University of Paderborn)

Abstract

The interregional mobility of high skilled workers might induce an underinvestment in local public higher education when sub-federal entities independently decide on education expenditures to maximize local output. This well-known result is due to interregional spillovers and provides a justification for coordinated education policy or rather a federal intervention. However, things might change completely when taking into account the interregional mobility of students. Now, local education expenditures not only affect labor migration (through wage differentials) but also student migration flows. The model in this paper then shows that local output maximization does not necessarily imply underprovision of higher education, since regions now have an incentive to attract students as future human capital. The stay rates of graduates in equilibrium and the sensitivity of wages to migration are key determinants of local policy. Furthermore, results depend on local government objectives or rather the weighting of natives relative to foreigners. Therefore, the paper also considers natives’ preferred local policy.

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File URL: http://groups.uni-paderborn.de/fiwi/RePEc/pdf/wpaper/WP11.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by University of Paderborn, CIE Center for International Economics in its series Working Papers with number 11.

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Length: 30 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:pdn:wpaper:11

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Keywords: higher education; student mobility; labor mobility; local public finance;

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  1. Andersson, Fredrik & Konrad, Kai A., 2002. "Human capital investment and globalization in extortionary states," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-01, Social Science Research Center Berlin (WZB).
  2. Boadway, R. & Marceau, N. & Marchand, M., . "Issues in decentralizing the provision of education," CORE Discussion Papers RP -1225, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Baruch, Yehuda & Budhwar, Pawan S. & Khatri, Naresh, 2007. "Brain drain: Inclination to stay abroad after studies," Journal of World Business, Elsevier, vol. 42(1), pages 99-112, March.
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