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Brain Drain, Fiscal Competition, and Public Education Expenditure
Author(s) -
Egger Hartmut,
Falkinger Josef,
Grossmann Volker
Publication year - 2012
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2011.01009.x
Subject(s) - economics , tax competition , social planner , competition (biology) , productivity , labor mobility , fiscal policy , investment (military) , welfare , public expenditure , labour economics , general equilibrium theory , international economics , public economics , international taxation , public finance , macroeconomics , tax reform , microeconomics , market economy , ecology , politics , political science , law , biology
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.