Education, Redistribution, and the Threat of Brain Drain,” International Tax and Public Finance (forthcoming

This paper analyzes the relationship between brain drain, human capital accu-mulation and individual net incomes in the presence of a redistributional tax policy, tax avoidance activities, credit market constraints, and lack of government commit-ment. We characterize how decreasing migration costs for skilled workers affect the time-consistent policies of a government that wants to shift resources from skilled to unskilled workers. Starting from a closed economy, declining migration costs first increase net income of both skilled and unskilled workers and then decrease net income of all households. Only for very low migration costs, there is a conflict of interest. In this case, skilled workers start to benefit again from a further rise in their mobility, but now at the expense of the unskilled labor force