Does competition for (human) capital discipline governments? The role of commitment

Roc Armenter () and Francesc Ortega

No 547, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We argue that labor mobility does not lead to a ''race to the bottom,'' where countries drastically cut redistributive transfers in order to attract skilled workers. The basis of our argument is that these cuts are not credible policies. We propose a two country model where competition for mobile factors is limited to credible policies. Both countries end up with positive redistribution, and the country with a technological advantage can sustain more redistribution. The model can address the interaction of redistribution and migration policies. In particular, we show that when countries have similar skill endowments but different technologies, migration policies enabling unskilled labor mobility lead to higher global welfare than policies enabling skilled labor mobility

Keywords: taxation; factor mobility; commitment (search for similar items in EconPapers)
JEL-codes: H21 F15 F22 (search for similar items in EconPapers)
Date: 2006-12-03

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Persistent link: http://EconPapers.repec.org/RePEc:red:sed006:547

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