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Brain Drain, Fiscal Competition, and Public Education Expenditure

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  • Hartmut Egger
  • Josef Falkinger
  • Volker Grossmann

Abstract

This paper uses a two-country model with integrated markets for high-skilled labor to analyze the opportunities and incentives for national governments to provide higher education. Countries can differ in productivity, and education is financed through a wage tax, so that brain drain affects the tax base and has agglomeration effects. We study unilateral possibilities for triggering or avoiding brain drain and compare education policies and migration patterns in non-cooperative political equilibria with the consequences of bilateral cooperation between countries. We thereby demonstrate that bilateral coordination tends to increase public education expenditure compared to non-cooperation. At the same time, it aims at preventing migration. This is not necessarily desirable from the point of view of a social planner who takes account of the interests of migrants.
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Suggested Citation

  • Hartmut Egger & Josef Falkinger & Volker Grossmann, 2012. "Brain Drain, Fiscal Competition, and Public Education Expenditure," Review of International Economics, Wiley Blackwell, vol. 20(1), pages 81-94, February.
  • Handle: RePEc:bla:reviec:v:20:y:2012:i:1:p:81-94
    DOI: j.1467-9396.2011.01009.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-9396.2011.01009.x
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    References listed on IDEAS

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    1. Silke Uebelmesser, 2006. "To Go or Not to Go: Emigration from Germany," German Economic Review, Verein für Socialpolitik, vol. 7, pages 211-231, May.
    2. Sascha O. Becker & Andrea Ichino & Giovanni Peri, 2004. "How Large Is the "Brain Drain" from Italy?," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 63(1), pages 1-32, April.
    3. Panu Poutvaara, 2003. "Educating Europe," Public Economics 0302008, EconWPA.
    4. Andersson, Fredrik & Konrad, Kai A., 2003. "Human capital investment and globalization in extortionary states," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1539-1555, August.
    5. JUSTMAN, Moshe & THISSE, Jacques-Francois, 1997. "Local public funding of higher education when skilled labor is mobile," CORE Discussion Papers 1997024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Panu Poutvaara, 2004. "Public Education in an Integrated Europe: Studying to Migrate and Teaching to Stay?," CESifo Working Paper Series 1369, CESifo Group Munich.
    7. Panu Poutvaara & Vesa Kanniainen, 2000. "Why Invest in Your Neighbor? Social Contract on Educational Investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 547-562, August.
    8. Bhagwati, Jagdish & Hamada, Koichi, 1974. "The brain drain, international integration of markets for professionals and unemployment : A theoretical analysis," Journal of Development Economics, Elsevier, vol. 1(1), pages 19-42, April.
    9. Panu Poutvaara, 2004. "Educating Europe: Should Public Education be Financed with Graduate Taxes or Income-contingent Loans?," CESifo Economic Studies, CESifo, vol. 50(4), pages 663-684.
    10. Justman, Moshe & Thisse, Jacques-Francois, 1997. "Implications of the mobility of skilled labor for local public funding of higher education," Economics Letters, Elsevier, vol. 55(3), pages 409-412, September.
    11. Alexander Haupt & Eckhard Janeba, 2009. "Education, redistribution and the threat of brain drain," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(1), pages 1-24, February.
    12. Beine, Michel & Docquier, Frederic & Rapoport, Hillel, 2001. "Brain drain and economic growth: theory and evidence," Journal of Development Economics, Elsevier, vol. 64(1), pages 275-289, February.
    13. Bucovetsky, S., 2003. "Efficient migration and redistribution," Journal of Public Economics, Elsevier, vol. 87(11), pages 2459-2474, October.
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    Citations

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    Cited by:

    1. Volker Grossmann & David Stadelmann, 2012. "Does High-skilled Migration Affect Publicly Financed Investments?," Review of International Economics, Wiley Blackwell, vol. 20(5), pages 944-959, November.
    2. Egger Hartmut & Felbermayr Gabriel, 2009. "Endogenous Skill Formation and the Source Country Effects of Skilled Labor Emigration from Developing Countries," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(6), pages 706-729, December.
    3. Egger, Hartmut & Felbermayr, Gabriel, 2009. "Endogenous skill formation and the source country effects of emigration," Munich Reprints in Economics 20521, University of Munich, Department of Economics.
    4. Hartmut Egger & Gabriel Felbermayr, 2007. "Endogenous Skill Formation and the Source Country Effects of International Labor Market Integration," CESifo Working Paper Series 2018, CESifo Group Munich.
    5. Grossmann, Volker & Stadelmann, David, 2008. "International Mobility of the Highly Skilled, Endogenous R&D, and Public Infrastructure Investment," IZA Discussion Papers 3366, Institute for the Study of Labor (IZA).
    6. RosalindS. Hunter & Andrew J. Oswald & Bruce G. Charlton, 2009. "The Elite Brain Drain," Economic Journal, Royal Economic Society, vol. 119(538), pages 231-251, June.
    7. Domenico Scalera, 2012. "Skilled Migration And Education Policies: Is There Still Scope For A Bhagwati Tax?," Manchester School, University of Manchester, vol. 80(4), pages 447-467, July.
    8. Boly, Amadou & Coniglio, Nicola Daniele & Prota, Francesco & Seric, Adnan, 2014. "Diaspora Investments and Firm Export Performance in Selected Sub-Saharan African Countries," World Development, Elsevier, vol. 59(C), pages 422-433.
    9. repec:got:cegedp:137 is not listed on IDEAS
    10. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers 137, University of Goettingen, Department of Economics.
    11. Georg-Benedikt Fischer & Berthold U. Wigger, 2016. "Fiscal Competition and Higher Education Spending in Germany," German Economic Review, Verein für Socialpolitik, vol. 17(2), pages 234-252, May.

    More about this item

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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