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Brain drain, fiscal competition, and public education expenditure


Egger, Hartmut; Falkinger, Josef; Grossmann, Volker (2012). Brain drain, fiscal competition, and public education expenditure. Review of International Economics, 20(1):81-94.

Abstract

A two-country model is developed in this paper to examine the implications of fiscal competition in public education expenditure under international mobility of high-skilled labor. The authors allow for educational choice, asymmetry of countries with respect to total factor productivity, and tax base effects of migration in source and host country. As the latter may give rise to multiplicity of equilibrium, alternative belief structures of mobile high-skilled workers are carefully taken into account. The paper also looks at the consequences of bilateral policy coordination. While in line with other studies on tax competition, bilateral coordination can reduce the under-investment problem in public education spending, it also tends to hinder migration or may even reverse the direction of the migration flow that materializes under non-cooperative policy setting. As a result of its potentially adverse effects on migration patterns, bilateral coordination may therefore reduce global welfare and bring the world economy further away from the social planner's solution.

Abstract

A two-country model is developed in this paper to examine the implications of fiscal competition in public education expenditure under international mobility of high-skilled labor. The authors allow for educational choice, asymmetry of countries with respect to total factor productivity, and tax base effects of migration in source and host country. As the latter may give rise to multiplicity of equilibrium, alternative belief structures of mobile high-skilled workers are carefully taken into account. The paper also looks at the consequences of bilateral policy coordination. While in line with other studies on tax competition, bilateral coordination can reduce the under-investment problem in public education spending, it also tends to hinder migration or may even reverse the direction of the migration flow that materializes under non-cooperative policy setting. As a result of its potentially adverse effects on migration patterns, bilateral coordination may therefore reduce global welfare and bring the world economy further away from the social planner's solution.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:February 2012
Deposited On:17 Dec 2012 14:20
Last Modified:05 Apr 2016 16:13
Publisher:Wiley-Blackwell Publishing Ltd.
ISSN:0965-7576
Additional Information:The definitive version is available at www3.interscience.wiley.com]
Publisher DOI:https://doi.org/10.1111/j.1467-9396.2011.01009.x

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