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Migration Taxes and Human Capital Formation: Some Implications for Development

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Author Info
Kar, Saibal

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Abstract

Use of migration tax as an instrument for financing development expenditure in poorer countries has received renewed attention recently and is evolving as an important subject of research in development economics. This paper discusses a related issue where the revenue collected by taxing skilled and unskilled migrants moving from poor to rich countries can help raising the level of human capital in the source country. The paper provides an unifying analysis for two distinct strands of literature-one claims that lack of restriction on skill migration promotes human capital formation and the other, the more conventional one, argues for greater restriction against negative impact of brain drain. Considering that both human capital formation and migration involve risk, we then explore a connection between imposition of migration tax, human capital formation and risk aversion. For a country with low level of human capital to start with, we establish that a proportionally higher migration tax imposed on the unskilled migrants considerably raises the average level of human capital for all nonmigrants. The disincentive effect of the migration tax and its use as educational subsidy shifts the critical relative risk aversion among the non-migrants in favour of acquiring more human capital. The proposed migration tax pattern also raises the average income level of all individuals and only conditionally for the non-migrants.

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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number UNU-WIDER Research Paper RP2007/44.

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Length: 20 pages
Date of creation: 2007
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Handle: RePEc:unu:wpaper:rp2007-44

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Related research
Keywords: migration tax; human capital; skill; risk aversion;

References listed on IDEAS
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  1. Karin Mayr, 2007. "Immigration and income redistribution: A political economy analysis," Public Choice, Springer, vol. 131(1), pages 101-116, April. [Downloadable!] (restricted)
  2. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1997. "A brain gain with a brain drain," Economics Letters, Elsevier, vol. 55(2), pages 227-234, August. [Downloadable!] (restricted)
  3. Mihir A. Desai & Devesh Kapur & John McHale, 2004. "Sharing the Spoils: Taxing International Human Capital Flows," International Tax and Public Finance, Springer, vol. 11(5), pages 663-693, 09. [Downloadable!]
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  4. David A. Jaeger & Holger Bonin & Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2007. "Direct Evidence on Risk Attitudes and Migration," Working Papers 50, Department of Economics, College of William and Mary. [Downloadable!]
    Other versions:
  5. Kong-Pin Chen & Shin-Hwan Chiang & Siu Fai Leung, 2003. "Migration, Family, and Risk Diversification," Journal of Labor Economics, University of Chicago Press, vol. 21(2), pages 323-352, April. [Downloadable!]
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  6. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December. [Downloadable!] (restricted)
  7. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1997. "A Brain Gain with a Brain Drain," Economics Series 45, Institute for Advanced Studies. [Downloadable!]
  8. Katz, Eliakim & Stark, Oded, 1987. "International Migration under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 97(387), pages 718-26, September. [Downloadable!] (restricted)
  9. Stark, Oded & Wang, Yong, 2001. "Inducing Human Capital Formation: Migration as a Substitute for Subsidies," Economics Series 100, Institute for Advanced Studies. [Downloadable!]
  10. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1998. "Human capital depletion, human capital formation, and migration: a blessing or a "curse"?," Economics Letters, Elsevier, vol. 60(3), pages 363-367, September. [Downloadable!] (restricted)
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