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Student and worker mobility under university and government competition

  • Delpierre, Matthieu
  • Verheyden, Bertrand

We provide a normative analysis of endogenous student and worker mobility in the presence of diverging interests between universities and governments. Student mobility generates a university competition effect which induces them to overinvest in education, whereas worker mobility generates a free-rider effect for governments, who are not willing to subsidize the education of agents who will work abroad. At equilibrium, the free-rider effect always dominates the competition effect, resulting in underinvestment in human capital. This inefficiency can be corrected under exogenous university budgets if a transnational transfer for mobile students is implemented. With endogenous income taxation, under the non-cooperative equilibrium between governments, the combination of the free-rider effect and fiscal competition leads to underinvestment in both teaching and research. Furthermore, the transnational transfer no longer restores efficiency. Instead, it can reinforce fiscal competition and imposes a tradeoff between research and human capital.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 110 (2014)
Issue (Month): C ()
Pages: 26-41

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Handle: RePEc:eee:pubeco:v:110:y:2014:i:c:p:26-41
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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