Local public funding of higher education when skilled labor is mobile
Inter-jurisdictional labor mobility when public funding of higher education is sub-federal leads to a disparity between the centralized output-maximizing allocation of resources to education and decentralized equilibria. We show that when local governments choose their level of spending on higher education at a Nash equilibrium, the size and direction of this disparity depend strongly on the political balance of forces at the sub-federal level. The more common case of under-investment can be alleviated through inter-jurisdictional subsidies of local education expenditures based on net migration flows.
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