The mobility of labor reduces national incentives to invest in internationally applicable education. The European Union could overcome this by allowing member states to institute graduate taxes or income-contingent loans, collected also from migrants. Graduate taxes or income-contingent loans result in higher welfare than financing education with employment-based taxes. (JEL H 24, H 52, I 28, F 22)
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Panu Poutvaara (2004) studied this question.
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