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Efficient Migration and Income Tax Competition

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  • S. Bucovetsky

    (York University, Canada)

Abstract

This paper examines the consequence of the brain drain for the income tax systems of the source and destination countries for the migration, if the two countries' policies are set noncooperatively by self-interested voters. It is assumed that the brain drain does increase the value of world output: workers with the highest income-earning ability are assumed to be more productive in one country than in another. There are costs to migration of these high-ability workers, costs that are less than the gain in the value of their production. However, for lower-ability workers, the gains in production in moving from the low-productivity country to the high-productivity country are assumed to be less than the migration costs. Voters in the high-productivity country want to capture rents from migrants. These voters are aware of the influence their tax policy has on people's migration decisions. Voters in the low-productivity country also behave strategically. I solve for the Nash equilibrium income tax rates. Increased mobility of highly skilled workers cannot decrease, and may increase, progressivity in the income tax system of the destination country, if migration actually occurs. Finally, the effects of transfers between countries on their income tax systems are examined. Redistribution between countries tends to lead to less redistribution within countries. If transfers between countries are set by a vote of all residents of both countries, then the transfer chosen will be the one that leads to the least progressive tax possible being chosen in each country. Copyright 2003 Blackwell Publishing Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 5 (2003)
Issue (Month): 2 (04)
Pages: 249-278

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Handle: RePEc:bla:jpbect:v:5:y:2003:i:2:p:249-278

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Cited by:
  1. McAusland, Carol & Kuhn, Peter, 2011. "Bidding for brains: Intellectual property rights and the international migration of knowledge workers," Journal of Development Economics, Elsevier, vol. 95(1), pages 77-87, May.
  2. Gary Charness & Peter Kuhn & Marie Claire Villeval, 2011. "Competition and the Ratchet Effect," Journal of Labor Economics, University of Chicago Press, vol. 29(3), pages 513 - 547.
  3. Kuhn, Peter J. & McAusland, Carol, 2008. "Consumers and the Brain Drain: Product Design and the Gains from Emigration," IZA Discussion Papers 3602, Institute for the Study of Labor (IZA).
  4. Kuhn, Peter & McAusland, Carol, 2009. "Consumers and the brain drain: Product and process design and the gains from emigration," Journal of International Economics, Elsevier, vol. 78(2), pages 287-291, July.
  5. Maria Rosaria Alfano, 2005. "Tax Competition in EU implies EMTR different: some effects on FDI and Economic Growth Rate," Public Economics 0510015, EconWPA.

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