TAX COMPETITION AND MIGRATION: THE RACE-TO-THE-BOTTOM HYPOTHESIS REVISITED

Assaf Razin and Efraim Sadka

No 275761, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: The literature on tax competition with free capital mobility cites several reasons for the race-to-the-bottom hypothesis in the sense that tax competition may yield significantly lower tax rates than tax coordination. With a fixed (exogenously given) population that can move from one fiscal jurisdiction to another, the Tiebout paradigm suggests that tax competition among these jurisdictions yields an efficient outcome, so that there are no gains from tax coordination. The Tiebout paradigm considers the allocation of a given population among competing localities. Our model of international tax-transfer and migration competition among host countries deviates from the Tiebout paradigm in that the total population in the host countries and its skill distribution are endogenously determined through migration of various skills. As a result, competition needs not be efficient. This paper suggests that when a group of host countries faces an upward supply of immigrants, tax competition does not indeed lead to a race to the bottom; competition may lead to higher taxes than coordination.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 13
Date: 2011-01
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Citations: View citations in EconPapers (3)

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Working Paper: Tax Competition and Migration: The Race-to-the-Bottom Hypothesis Revisited (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275761

DOI: 10.22004/ag.econ.275761

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