Inducing human capital formation: migration as a substitute for subsidies

When productivity is fostered by an individual’s own human capital as well as by the economy-wide average level of human capital, individuals under-invest in human capital. The provision of subsidies for the formation of human capital, conditional on the subsidy being self-financed by tax revenues,...

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Bibliographic Details
Published inJournal of public economics Vol. 86; no. 1; pp. 29 - 46
Main Authors Stark, Oded, Wang, Yong
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.10.2002
Elsevier
SeriesJournal of Public Economics
Subjects
Economics
Externalities
Human capital
Human capital formation
Migration
Public economics
Social welfare
Welfare economics
Externalities
Human capital formation
J61
Migration
F22
I30
Social welfare
H23
J24
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Summary:When productivity is fostered by an individual’s own human capital as well as by the economy-wide average level of human capital, individuals under-invest in human capital. The provision of subsidies for the formation of human capital, conditional on the subsidy being self-financed by tax revenues, can bring the economy to its socially optimal level of human capital. Yet a strictly positive probability of migration to a richer country, by raising both the level of human capital formed by optimizing individuals in the home country and the average level of human capital of non-migrants in the country, can enhance welfare and nudge the economy toward the social optimum. Indeed, under a well-controlled, restrictive migration policy the welfare of all workers is higher than in the absence of this policy.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0047-2727
1879-2316
DOI:10.1016/S0047-2727(01)00104-9