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Brain Drain, Fiscal Competition, and Public Education Expenditure

Authors

  • Hartmut Egger,

    Corresponding author
    1. University of Bayreuth, Universitaetsstr. 30, 95447 Bayreuth, Germany and GEP, Nottingham, UK; CESifo, Munich, and IW, Kiel, Germany
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  • Josef Falkinger,

    1. University of Zurich, Zurichbergstr. 14, 8049 Zurich, Switzerland, and CESifo, Munich, and Institute for the Study of Labor (IZA), Bonn, Germany
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  • Volker Grossmann

    1. University of Fribourg, Bd. de P_erolles 90, 1700 Fribourg, Switzerland, and CESifo, Munich, and Institute for the Study of Labor (IZA), Bonn, Germany
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    • The authors wish to thank two anonymous referees, Frédéric Doquier, Maurice Schiff, David Stadelmann, Fabrizio Zilibotti, Josef Zweimüller, as well as participants at the conference on “Immigration: Impacts, Integration and Intergenerational Issues” at University College London, the Annual Meeting of the German Economic Association in Munich, and the “2nd International Migration and Development Conference” in Washington DC (World Bank) for helpful comments and suggestions.


Egger (corresponding author): University of Bayreuth, Universitaetsstr. 30, 95447 Bayreuth, Germany and GEP, Nottingham, UK; CESifo, Munich, and IW, Kiel, Germany. Tel: +49-921-55-2906; Fax: +49-921-55-842905, E-mail: hartmut.egger@uni-bayreuth.de. Falkinger: University of Zurich, Zurichbergstr. 14, 8049 Zurich, Switzerland, and CESifo, Munich, and Institute for the Study of Labor (IZA), Bonn, Germany. Tel: +41-44-634-2290, Fax: +41-44-634-4996, E-mail: josef.falkinger@econ.uzh.ch. Grossmann: University of Fribourg, Bd. de P_erolles 90, 1700 Fribourg, Switzerland, and CESifo, Munich, and Institute for the Study of Labor (IZA), Bonn, Germany. Tel: +41-26-300-8266, Fax: +41-26-300-9678, E-mail: volker.grossmann@unifr.ch.

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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