Artificial Time Inconsistency as a Remedy for the Race to the Bottom (new title: Delayed Integration as a Possible Remedy for the Race to the Bottom)

Alfons J. Weichenrieder, Oliver Busch and Alfons Weichenrieder
Authors registered in the RePEc Author Service: Alfons J. Weichenrieder

No 1637, CESifo Working Paper Series from CESifo

Abstract: A long-standing concern in the literature has been that household mobility implies a serious threat to the viability of redistributive taxation. This paper considers the effects of deferred integration of migrants into the redistributive system of the target country. In a model of symmetric regions, deferred integration introduces a time consistency problem into governments' tax plans which reduces a region's incentive to undercut other regions' tax rates and can bring tax competition to a halt. On the one hand, rich migrants cease to benefit from the lower tax rate in the current period. On the other hand, the region's promise of a continuing low rate in the future is not credible. We also explore the case where poor recipients of social assistance are mobile while the rich are immobile.

Keywords: tax competition; federalism; mobility; social assistance; time consistency (search for similar items in EconPapers)
JEL-codes: H25 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-pbe
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