Gains and Losses from Tax Competition with Migration
AbstractWe consider international labour (entrepreneur) mobility in a two-country overlapping-generations model. Interactions of decreasing and increasing returns in production yield multiple equilibria that are stable under adaptive learning. Governments have a unilateral incentive to reduce income taxes at the joint optimum. We compare the Nash equlibrium in taxes under full labour mobility to the closed economy with no mobility. Despite strategic tax setting, the free mobility outcome is often better in welfare terms. Large, discrete gains in welfare may be attained because of the tax competition. Expectational barriers for discrete welfare improvements can be overcome through tax competition.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0416.
Date of creation: Feb 2004
Date of revision:
Note: Ma, PE
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Web page: http://www.econ.cam.ac.uk/index.htm
tax policy; mobility of labour; multiple equilibria; expectation traps;
Other versions of this item:
- Honkapohja, Seppo & Turunen-Red, Arja H., 2004. "Gains and losses from tax competition with migration," Working Papers 2004-01, University of New Orleans, Department of Economics and Finance.
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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