Inducing human capital formation: Migration as a substitute for subsides

Oded Stark*, Yong Wang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish
Pages (from-to)29-46
Number of pages18
JournalJournal of Public Economics
Issue number1
StatePublished - 2002
Externally publishedYes


  • Externalities
  • Human capital formation
  • Migration
  • Social welfare


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