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Income Redistribution in a Common Labor Market

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  • Wildasin, David E

Abstract

When households are mobile among jurisdictions, income redistribution by individual jurisdictions creates fiscal externalities. A model of interjurisdictional migration is used to study the nature of this redistributive externality. Analysis of optimal redistribution and optimal corrective subsidies from higher-level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions. A system of jurisdictions with a common labor market can achieve welfare improvements through coordination of "domestic" redistributive policy or through the intervention of a higher-level government. Copyright 1991 by American Economic Association.

Suggested Citation

  • Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-774, September.
    • Handle: RePEc:aea:aecrev:v:81:y:1991:i:4:p:757-74
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