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MIGRATION into the WELFARE STATE: tax and migration competition

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  • Assaf Razin

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Abstract

Despite big gains from easing restrictions on international labor mobility, liberalizing migration flows is not pursued unilaterally or negotiated among countries in a way that international trade negotiations are pursued. Among several key explanations is the fiscal burden imposed by immigration on native-born. The paper focuses on a central tension faced by policy makers in countries that receive migrants from lower wage countries. Such countries are typically high productivity and capital rich, and the resulting high wages attract both skilled and unskilled migrants. A generous welfare state may attract low-skill migration deter skilled migration, since it is likely to be accompanied by higher redistributive taxes. Assuming that a group of host countries faces an upward supply of immigrants, the analysis demonstrates that tax competition does not indeed lead to a race to the bottom; competition may lead to higher taxes than coordination. There exists a fiscal externality (fiscal leakage) that causes tax rates (on both labor and capital), and the volume of migration (of both skill types), to be higher in the competitive regime than in the coordinated regime. Copyright Springer Science+Business Media New York 2013

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 20 (2013)
Issue (Month): 4 (August)
Pages: 548-563

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Handle: RePEc:kap:itaxpf:v:20:y:2013:i:4:p:548-563

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Controlled migration; Generosity of the welfare state; Tax completion vs. tax coordination; F220; H200;

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  1. Assaf Razin & Jackline Wahba, 2011. "Welfare Magnet Hypothesis, Fiscal Burden and Immigration Skill Selectivity," NBER Working Papers 17515, National Bureau of Economic Research, Inc.
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Cited by:
  1. Jean Gabszewicz & Ornella Tarola & Skerdilajda Zanaj, 2013. "Migration, wages and fiscal competition," CREA Discussion Paper Series 13-19, Center for Research in Economic Analysis, University of Luxembourg.

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