Fiscal and Migration Competition

Assaf Razin and Efraim Sadka

No 16224, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: It is often argued that tax competition may lead to a "race to the bottom". Such a race may hold indeed in the case of the pure case of factor mobility (such as capital mobility). However, in this paper we emphasize the unique feature of labor migration, that may nullify the "race to the bottom" hypothesis. Labor migration is governed by net-of-tax factor rewards and the benefits that the welfare state provides. Tax rates are determined in a political economy set up which takes into account the effect of taxes and migration on factor rewards and the fiscal burden imposed by migration on the decisive voter. The paper models the host country stylistically as a member of the core of an economic union (i.e., a core EU welfare state member state), with tax financed benefits which is able to control the volume and the skill-composition of migration. The source country is modeled as an accession country to an economic union (i.e., through the EU enlargement treaty), with its own welfare (tax-benefit) policy. We let these two countries engage in fiscal competition. Using numerical simulations we examine how the migration policies are affected by whether the skilled or the unskilled are in power. We also analyze differences for tax policies between free and controlled migration, and the role of productivity gap.

JEL-codes: F2 H87 (search for similar items in EconPapers)
Date: 2010-07
Note: IFM POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Assaf Razin and Efraim Sadka "Tax Competition and Migration: The Race ‐ to ‐ the ‐ Bottom Hypothesis Revisited" forthcoming in CESifo Economic Studies , Volume 58, Number 1, March 2012, Oxford University Press.

Downloads: (external link)
http://www.nber.org/papers/w16224.pdf (application/pdf)

Related works:
Working Paper: Fiscal and Migration Competition (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:16224

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w16224

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().