Fiscal Competition and Migration Patterns

Patrice Pieretti (), Giuseppe Pulina, Andreas Sintos and Skerdilajda Zanaj
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Patrice Pieretti: DEM, Université du Luxembourg

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: In this paper, we model migration patterns as the outcome of strategic public policies adopted by competing jurisdictions. We assume that two economies, distinguished by different technological levels, host a continuum of mobile individuals with varying skill levels. To maximize their net revenues, governments compete for mobile workers by taxing wages and providing a public good that enhances firm productivity (public input). We show that the most skilled workers migrate to the technologically advanced economy. However, by offering lower taxes or more public inputs, the less technologically developed country can retain part of its skilled labor force and attract skilled workers from abroad, albeit not the most qualified. As a result, a two-way migration pattern emerges, driven by governments’ strategic policy choices. Finally, the introduction of heterogeneity in population size does not significantly alter the results.

Keywords: Bilateral migration; Tax competition; Heterogeneous skills; Technological gap; Policy competition. (search for similar items in EconPapers)
JEL-codes: F22 F60 H20 H30 H54 H87 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-int, nep-mig, nep-pbe and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:24-04

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