Local Public Funding of Higher Education When Skilled Labor is Imperfectly Mobile
Posted: 16 Jul 2001
If higher education is publicly funded by local (sub-federal) jurisdictions, while skilled labor is heterogeneous in to wage differentials between jurisdictions, the spillovers that result give rise to a disparity between the centralized output-maximizing allocation of resources to higher education and decentralized equilibria. Generally, decentralization leads to under-provision, which can be offset by inter-jurisdictional subsidies based on gross migration flows. But the extent of the discrepancy depends on the local balance of political forces. Indeed, when the welfare of native-born emigrants is highly valued while new immigrants carry little political weight, over-provision in equilibrium is possible.
Keywords: Education, labor mobility, local public finance, fiscal federalism
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