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Credible redistribution policy and skilled migration

Roc Armenter () and Francesc Ortega

European Economic Review, 2011, vol. 55, issue 2, 228-245

Abstract: We analyze the joint determination of income redistribution and migration flows across fiscally independent regions. In our model, regional governments lack commitment so their policy announcements must be credible, and redistribution between skilled and unskilled workers is bounded by informational constraints. In any given region, the welfare of all workers is increasing in the share of skilled workers, as after-tax incomes increase for both skilled and unskilled workers. When skilled workers are more geographically mobile than unskilled ones, the endogenous response of redistribution policy can induce regional agglomeration of skilled workers. We also find that the equilibrium features symmetry-breaking if migration costs are relatively low; and that worker mobility tends to amplify pre-existing welfare differences in income and welfare across regions.

Keywords: Agglomeration; Migration; Redistribution (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:eee:eecrev:v:55:y:2011:i:2:p:228-245