TY - JOUR
T1 - Inducing human capital formation
T2 - Migration as a substitute for subsides
AU - Stark, Oded
AU - Wang, Yong
N1 - Funding Information:
We are indebted to Lawrence Khoo, to two anonymous referees, and to James Poterba for insightful comments. Partial financial support from the Humboldt Foundation is gratefully acknowledged.
PY - 2002
Y1 - 2002
N2 - 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.
AB - 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.
KW - Externalities
KW - Human capital formation
KW - Migration
KW - Social welfare
UR - http://www.scopus.com/inward/record.url?scp=0036338697&partnerID=8YFLogxK
U2 - 10.1016/S0047-2727(01)00104-9
DO - 10.1016/S0047-2727(01)00104-9
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AN - SCOPUS:0036338697
SN - 0047-2727
VL - 86
SP - 29
EP - 46
JO - Journal of Public Economics
JF - Journal of Public Economics
IS - 1
ER -