Income Redistribution in a Common Labor Market

David Wildasin

American Economic Review, 1991, vol. 81, issue 4, 757-74

Abstract: When households are mobile among jurisdictions, income redistribution by individual jurisdictions creates fiscal externalities. A model of interjurisdictional migration is used to study the nature of this redistributive externality. Analysis of optimal redistribution and optimal corrective subsidies from higher-level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions. A system of jurisdictions with a common labor market can achieve welfare improvements through coordination of "domestic" redistributive policy or through the intervention of a higher-level government. Copyright 1991 by American Economic Association.

Date: 1991
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