Public and private education in an integrated Europe: studying to migrate and teaching to stay?

This paper investigates public and private choices between internationally applicable and country-specific education when graduates are mobile. Human capital depends on innate skills and study effort with either type of education. It is shown that national governments provide too few students with internationally applicable education, and too many with country-specific education. This effect is mitigated, but not entirely eliminated, by the introduction of a graduate tax, according to which graduates are required to pay part of their taxes to the country where they received their education, regardless of residence. However, private educational choices are socially optimal with suitably differentiated tuition fees.