TAX COMPETITION AND BRAIN DRAIN IN THE EUROPEAN UNION MEMBERS

Transcription

1 Year V, No.7/ AX COMPEON AND BRAN DRAN N HE EUROPEAN UNON MEMBERS Lec. Raluca DRĂCEA, PhD Lec. Crsan SANCU, PhD Unversy of Craova 1. nroducon he presen paper ams o sudy he correlaon beween he bran dran phenomenon and ax compeon, phenomena whch, for a long me, have been handled and suded n a separae manner by he auhors. Alhough he bran dran conceps and he ax compeon are conneced by means of he mgraon phenomenon, sll, for a long me, he leraure suded hem separaely due o he complexy of jon analyss. herefore, a seres of prevous elaboraed sudes (Kuren, C.., 1999; Robnson, Vk, 2003; Ferro, A., 2004; Fagan, Frank, 2004; Mchell, D, 2004; eff, C., 2004; Len, Donald, 2005; Wldasn, D., 2005; Perpaolo, G., 2006;) have developed wo separae branches for he bran dran and ax compeon phenomena. he frs s focused on he bran dran phenomenon from a macroeconomc approach and sudes s mpac upon he economc rase n dfferen analysed economes. he second analyses he ax compeon from he mcroeconomc perspecve, beng focused on he neracon beween he mgraon phenomenon and he desnaon saes. Regardng he unary handlng of hese wo phenomena, wo sudes draw our aenon n a specal manner: Bran dran and fscal compeon. A heorecal model for Europe (Perpaolo Gannoccolo, 2006) and Bran dran, fscal compeon and publc educaon expendure (Harmu Egger, osef Falknger, Volker Grossman, 2007). he auhors drew he aenon upon he danger generaed by ax compeon, whch dsplays nsde he communy space, upon he mgraon phenomenon. he performed analyses were grounded on buldng some analyss models of he opporunes and rsks generaed by polcy n he educaon feld. he model presened n he paper s an adapaon of he so-called Model of he Bran Dran and Human Capal Formaon elaboraed by Mounford (1997), by whch here are descrbed he dfferen researched varables: bran gan, bran dran, mgraon compeon and ax compeon. Obvously, he scenaros may be dfferen from counry o counry dependng on he dfferen values of he wo key facors aken no accoun: mgraon probably (π ) and consderable dfferences of echnologcal capacy ( η ).. 2. Conceps and defnons Bran dran or human capal flgh s he emgraon phenomenon of he educaed or alened persons due o varous accouns: conflcs, lack of opporunes, and so on. he nvesmen n educaon s los along wh he person's deparure, who usually doesn' come back n hs/her counry of orgn. Whn Royal Socey of London he erm of bran dran was used for he frs me n order o descrbe he leavng of scenss and echncans for USA or Canada a he begnnng of he 50's n he pas cenury. he phenomenon

2 134 Fnance Challenges of he Fuure known as bran dran s sll presen nowadays and s also defned as a consan ransfer (dran) of personnel wh hgh sklls (bran) from ceran counres, generally less developed, owards ohers whch are more developed from he economcal pon of vew, f s aken no accoun he fac ha man reason of he phenomenon s an economc one. herefore, he bran dran s he par of he emgraon whch comprses he persons wh hgh sklls, unversary educaon. arses from here ha he dffculy of quanfng he phenomenon, as he majory of he saes dspose of general sascal daa concernng emgraon, bu do no dspose of dsrbued sascs whch would quanfy he educaon level of he emgrans. he phenomenon s assocaed wh he capal flgh erm, whch refer o he capal fgh whch s no nvesed n he counry where s holder lves and where was creaed. he exodus s volunary, braked by he counres of orgn and encouraged by he recevng counres. n he OECD repor (1987) here are oher defnons of he bran dran phenomenon: Bran dran mples a flow of specalss wh wo drecons beween he counry whch sends and he one whch receves. However, he ne flow s n a decsve manner favoured n only one drecon, he erms used n hs case beng bran gan (benef for he counry of orgn and he source counry) or bran dran (val loss of human resource for he counry of orgn). A subsequen erm bran wase descrbes he wasng of ables whch akes place when he very well raned specalss mgrae owards ceran work places whch don' requre he ables and experence appled o he prevous work place. ax compeon arses because he member saes of he European Unon are n compeon n order eher o arac a moble axaon bass or o rejec he moble axaon benefcares. Generally, he work force s less moble han he capal and a work force wh low sklls s less moble han a work force wh hgh sklls. As a consequence, he ax compeon leads o an essenal change regardng he axaon srucure. hus, he governmens of he member saes are forced o reduce he axaon level for he facors havng a hgh mobly and o ncrease he ax burden on less moble sources, n order o proec he revenues. f here s a ax compeon, he ax raes shall move, as a consequence, from he corporae revenues o he personal ones, from he capal revenues o he ones from he work force, from he hgh revenue o he low one generaed by he work force and generally from he revenues and welfare axaon o consumpon's axaon. he man resuls of he evoluon of axaon level whn he European Unon durng he las decades confrms exacly he fac ha hs hng happened. Concernng he czens of he European Unon, hese choose her resdence n a sae whch would offer hem an opmal combnaon beween he ax burden and he publc asses of whch hey can ake advanage for free. n he conex of he European Unon, he mobly of he czens s free of any knd of nsuonal consrans so ha he culural negraon ncreases he probably of mgrang whn he Unon. Especally for ha reason, he flow of specalss reached a relevan poson n he research agenda of he European Unon. As a consequence, sudyng he bran dran phenomenon s closely conneced o he elecon of he specalss' educaon. f publc educaon s good, he sklled specalss may mgrae, and as a secondary effec, he ax compeon s accenuang. Moreover, f he governmens of he member saes don' coordnae he axaon sysems and he qualy of publc servces (eachng sysem, especally), a seres of negave economc effecs may arse up o he sandard of he saes.

3 Year V, No.7/ n hs conex, s necessary o redefne he bran dran phenomenon up o he sandard of he member saes of he European Unon, as he ax compeon may be used as a new ool of publc neres (Perpaolo Gannoccolo, 2007). Furhermore, when he expanded European Unon s analysed, wo ypes of saes may be dsngushed: old saes, wh a powerful economc developmen and he new member saes, wh less sold economes and low producvy. mplcly, he old member saes may compee o one anoher n order o arac sklled specalss whch belong o he counres n Cenral Europe and Easern Europe, hus arsng he mgraon compeon phenomenon. 3. Model descrpon he model respresens a more smpler verson of he Bran dran model and Mounford's human capal formaon (1997). hrough he model, we sudy he specfc case of he European Unon n whch he mobly of he specalss s freely allowed, n order o denfy he possble negave effec generaed by he neracon beween he ax compeon and bran dran phenomenon. he model analyses an opened economy, wh only one good produc consanly analysed by means of work effcency un (L): Y= XL. We suppose ha he educaon decson s each person's free wll, and he czens of each sae may choose o be educaed or no. A he same me, we suppose ha he rae of he wage on work effcency uns s ndependen of he work force n me and ndependen of work producvy or echnology level λ, whch s gven: w=λw. Concernng he dsrbuon of ables, he persons own dfferen laen ably models, where e o ndcae he laen ably of person. We suppose ha all generaons have laen ables whch are chosen from he same dsrbuon and ha he chldren's ables are ndependen of her parens' ables. Educaon. We suppose ha all czens have he same preferences and access o he same echnology, alhough hey don' have he same laen ably levels. he czens who nves n educaon oban e o work effcency uns, where e o s he laen ably level of he agen. Furhermore, le's suppose ha he czens who don' nves n educaon have a sngle work effcency un and ha he coss of educaon may be seled o c ex uns he governmen shall nfluence he educaon decsons of he czens by axng he sklled ones, coverng a par of her educaon coss. hus, by granng he subvenons for educaon, he educaon cos becomes c-γ, where γ s he subvenon for educaon. Le's defne as he margnal rae of he specalss' axes n generaon nroducng he ax, he wage rae for he work effcency un becomes: w = λ we ( 1 ) Mgraon (π ). Le's suppose ha emgraon s allowed only for he specalss (sklled persoans). Le's suppose ha he probably of a successful emgraon for he sklled czens born n counry, π, s ndependen of he number of poenal czens for emgraon. Le's suppose ha he emgraon polcy s compleely ancpaed. A he same me, we suppose ha n he model here aren' mobly coss, so ha he sklled specalss decde f hey mgrae or no, as an answer o he dfferen wages whch hey receve. her fuure wage s conneced o he axng polcy of he saes and o he dfference of echnology beween counres. herefore, he sklled czens shall raher say n he counry f: j, η + ( 1 η),,

4 136 Fnance Challenges of he Fuure a j a Where: η = a j and s he counry whch offers o he sklled specalss a beer wage. So, we may dfferenae hree dfferen sages: Case (1): all educaed persons wsh o mgrae n he regon: η + ( 1 η) Case (2): all educaed persons wsh o mgrae n he regon: η + ( 1 η) Case (3): s no mgraon: = η + ( 1 η) 4. Bran dran or bran gan? As we have shown above, he bran dran phenomenon represens he specalss' mgraon from a counry o anoher, whou he source counry havng any benef of. he bran gan phenomenon arses also from he bdreconal movemen beween he member saes, bu here here s a benef from he emgraon. hus, n order o beer undersand he role of emgraon n he rasng and developmen of he member saes, s necessary o perform an analyss from whch o grow ou he exsence or vodness of he suaons when he emgraon ncreases he number of specalss n boh saes (bdreconal movemen), hus ncreasng he developmen of he saes. Bellow we shall analyse only he frs case prevously presened and namely he case n whch all specalss wsh o mgrae n he counry. Case (1): η + ( 1 η) : all sklled persons wsh o mgrae n he counry. Bu he counry doesn' lose s specalss and aracs only he sklled ones from oher counres. herefore, n order o analyse he possbly of he benef from emgraon (Bran gan) we sudy he counres from whch hey come from. he medum proporon of he sklled persons n he economy s gven by he followng equaon : s (1 π ) E e,, = E 1 π e, g( e ) de g( e ) de f π = 1 hen he source economy N loses all s specalss and S = 0. f π = 0 hen nsde he unon he emgraon doesn' exs. herefore, an adequae condon for he exsence of a posve level of specalss' ransfer so ha he economy o ake advanage concernng he producvy s ds, ha 0 when π = 0. he dπ opmum level of π shall be gven when ds, = 0 dπ. hus, f here are bg wage dfferences on he producvy of he work un and here s a defecve mobly of he sklled specalss hen a posve opmum level of emgraon arses f A 0,, As a consequence, he source economy may ake advanage of he bran dran f here s an adequae number of persons who would nves n educaon. Gong furher wh he correlaons, he ax compeţon dsplayed by axaon and educaon valorzaon mples wo dfferen resuls. herefore, he successve axaon of he work force reduces a lo he probably ha he new-comers o be under opmal bran dran condons. On he oher hand, he axes ncrease he wage dfferences beween he enrance counry and he ohers and hus ncreases he possbly of ganng from he bran dran, exclusve benef for he desnaon counry.

5 Year V, No.7/ Conclusons Bran Gan. When he counry s less producve han he counry and he probably of emgraon π s low, means ha we fnd ourselves n he scenaro descrbed by Maunford (1997). hus, he specalss' mgraon may rase he producvy and he medum equaly n he source economy (bran gan). n he European conex, hs scenaro may be possble when he newcomer of he European Unon s less producve han he frs (bu whou exsng major dfferences). n hs scenaro, he opmal polcy of he European Unon's nsuons s o ake no acon. Bran Dran. he dfferences beween counres are so bg ha he counry wh he hghes producvy aracs n an unlaeral manner he specalss from oher counres. hs scenaro s usually suded by specaly leraure, whch ofen refers o he undreconal flow of he over-sklled work force from he less developed counres. hs leraure explaned he human capal flgh as beng a negave axaon exernaly due o mgraon. he possbly ha he welfare of hose who reman n he less developed counres o be reduced by he exodus of he sklled persons was also acknowledged n leraure. From he paper of Grubel and Sco, Berry and Solgo and Harry ohnson n he 60's, he man concluson was ha he welfare of hose who ddn' emgrae should decrease only f he conrbuon of he emgranţs o he naonal producon was hgher han her ncome. n hs scenaro (n whch our counry s ncluded also) he opmal polcy of he European Unon's nsuons s o nroduce a ax on bran dran n order o compensae he permanen loss of human resource for he source counry. Emgraon compeon. n hs case he saes don' have major producvy dfferences and compee aracng he sklled specalss (emgraon compeons), usually from he counres less developed from he economc pon of vew. he man drecons by means of whch he specalss may be araced could be summarzed as follows: - buldng a more opened and flexble academc sysem; - mprovng he regulaory condons, especally upon mgraon; - a beer nformaon up o he naonal sandard; - promong on a large scale of he scholarshps for he foregn researchers; - homogenzng he wage ncomes for smlar ranngs on he work force marke; - reducng he axes, especally for he researchers and nellecuals; - promong a more acve nernaonal markeng and suppor for he nernaţonal researchers. ax compeon. he emgraon probably s hgh (or very close) and he counres have he same producvy (or almos he same). n hs case, he possbly ha all sklled specalss o leave suggess he adjusmen of nvesmens n educaon. n he European conex, hs scenaro s possble whn he frs member saes of he European Unon. n hs scenaro, he opmal polcy of he European Unon's nsuons s o coordnae all member saes and o defne a common lne regardng he nvesmens n educaon and research. REFERENCES Gannoccolo, P. (2005), Bran Dran Compeon, Polces n Europe: a Survey, Dparmeno d Scenze Economche d Bologna, workng

6 138 Fnance Challenges of he Fuure Gannoccolo, P. (2006), Mchell, D. (2004), Mounford, A. (1997), Sark O. and Y.Wang (2002), Sal,. C., P. Compon,P. Densham,. Hogarh, S. Schmd (1999), paper n_ 534 Bran Dran and Fscal Compeon: a heorecal Model for Europe, Unversy of Mlano Bcocca (Mlan - aly) Deparmen of Sascs and Deparmen of Economcs, Unversy of Bologn ax compeon and fscal reform: Rewardng pro-growh ax polcy, Prepared for A Lberal Agenda for he New Cenury: A Global Perspecve, a Conference cosponsored by he Cao nsue, he nsue of Economc Analyss and he Russan Unon of ndusralss and Enrepreneurs, Moscow, Russan Federaon. Can a bran dran be good for growh n he source economy? ournal of Developmen Economcs, 53. nducng human capal formaon: mgraon as a subsue for subsdes, ournal of Publc Economcs, 86, 1. Assessmen of possble mgraon pressure and s Labour marke mpac followng EU enlargemen o Cenral and Easern Europe: Par, London HMSO. Wldasn, D. E. (2005), Fscal Compeon, FR Workng Paper No