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Indeterminacy in a Dynamic Small Open Economy withInternational Migration

Carmelo Parello ()

No 159, Working Papers from University of Rome La Sapienza, Department of Public Economics

Abstract: In this paper we present a dynamic small open economy version of the standardneoclassical model of exogenous growth where we allow for international migration. We considerboth the case of perfect world capital markets and the case of imperfect capital markets andshow that local indeterminacy always arises independently of the capital market regime. Also,we show that the competitive equilibrium fails to reach the social optimum and that the onlypolicy capable of establishing the …rst best is tax capital earnings. Our analysis thus supportsthe view that all the policy actions that aim at restricting migration ‡ows are always ine¤ectiveto achieve the …rst best.

Keywords: Small Open Economy; Indeterminacy; International Migration; Capital Adjustment Costs; First Best (search for similar items in EconPapers)
JEL-codes: C61 C62 F22 F43 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mig
Date: 2012-11
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