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Brain Drain, Fiscal Competition, and Public Education Expenditure

  • Hartmut Egger
  • Josef Falkinger
  • Volker Grossmann

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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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 20 (2012)
Issue (Month): 1 (02)
Pages: 81-94

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Handle: RePEc:bla:reviec:v:20:y:2012:i:1:p:81-94
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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, 05.
  2. 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.
  3. 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.
  4. Panu Poutvaara, 2004. "Public Education in an Integrated Europe: Studying to Migrate and Teaching to Stay?," CESifo Working Paper Series 1369, CESifo Group Munich.
  5. Justman, M. & Thisse, J.-F., . "Implications of the mobility of skilled labor for local public funding of higher education," CORE Discussion Papers RP 1296, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Andersson, Fredrik & Konrad, Kai A., 2001. "Human Capital Investment and Globalization in Extortionary States," IZA Discussion Papers 239, Institute for the Study of Labor (IZA).
  7. 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).
  8. Panu Poutvaara, 2004. "Educating Europe," CESifo Working Paper Series 1114, CESifo Group Munich.
  9. Bucovetsky, S., 2003. "Efficient migration and redistribution," Journal of Public Economics, Elsevier, vol. 87(11), pages 2459-2474, October.
  10. Poutvaara, Panu, 2004. "Educating Europe: Should Public Education be Financed with Graduate Taxes or Income-contingent Loans?," Munich Reprints in Economics 19296, University of Munich, Department of Economics.
  11. Poutvaara, Panu & Kanniainen, Vesa, 2000. "Why invest in your neighbor? Social contract on educational investment," Munich Reprints in Economics 19797, University of Munich, Department of Economics.
  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. Alexander Haupt & Eckhard Janeba, 2009. "Education, redistribution and the threat of brain drain," International Tax and Public Finance, Springer, vol. 16(1), pages 1-24, February.
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