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Artificial Time Inconsistency as a Remedy for the Race to the Bottom (new title: Delayed Integration as a Possible Remedy for the Race to the Bottom)

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Author Info

  • Alfons Weichenrieder
  • Oliver Busch

Abstract

A long-standing concern in the literature has been that household mobility implies a serious threat to the viability of redistributive taxation. This paper considers the effects of deferred integration of migrants into the redistributive system of the target country. In a model of symmetric regions, deferred integration introduces a time consistency problem into governments' tax plans which reduces a region's incentive to undercut other regions' tax rates and can bring tax competition to a halt. On the one hand, rich migrants cease to benefit from the lower tax rate in the current period. On the other hand, the region's promise of a continuing low rate in the future is not credible. We also explore the case where poor recipients of social assistance are mobile while the rich are immobile.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-12/cesifo1_wp1637.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1637.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1637

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Keywords: tax competition; federalism; mobility; social assistance; time consistency;

This paper has been announced in the following NEP Reports:

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  1. Cremer, Helmuth & et al, 1996. "Mobility and Redistribution: A Survey," Public Finance = Finances publiques, , vol. 51(3), pages 325-52.
  2. Hans-Werner Sinn, 2004. "Migration and Social Replacement Incomes: How to Protect Low-Income Workers in the Industrialized Countries Against the Forces of Globalization and Market Integration," CESifo Working Paper Series 1265, CESifo Group Munich.
  3. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  4. George J. Borjas, 1998. "Immigration and Welfare Magnets," NBER Working Papers 6813, National Bureau of Economic Research, Inc.
  5. Sinn, Hans-Werner, 1994. "How Much Europe? Subsidiarity, Centralization and Fiscal Competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(1), pages 85-107, February.
  6. Michel, Ph. & Pestieau, P. & Vidal, J. -P., 1998. "Labor migration and redistribution with alternative assimilation policies: The small economy case," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 363-377, May.
  7. Spoerer Mark, 2002. "Wann begannen Fiskal- und Steuerwettbewerb?," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, vol. 43(2), pages 35-60, December.
  8. Wolfram F. Richter, 2002. "Delaying Integration of Immigrant Labor for the Purpose of Taxation," CESifo Working Paper Series 802, CESifo Group Munich.
  9. Feld, Lars P, 2000. " Tax Competition and Income Redistribution: An Empirical Analysis for Switzerland," Public Choice, Springer, vol. 105(1-2), pages 125-64, October.
  10. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.
  11. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 495-526, December.
  12. Wolfram F. Richter, 2001. "Delayed Integration of Mobile Labor: A Principle for Coordinating Taxation, Social Security, and Social Assistance," CESifo Working Paper Series 624, CESifo Group Munich.
  13. Pauly, Mark V., 1973. "Income redistribution as a local public good," Journal of Public Economics, Elsevier, vol. 2(1), pages 35-58, February.
  14. Andersson, Fredrik & Konrad, Kai A, 2003. "Globalization and Risky Human-Capital Investment," International Tax and Public Finance, Springer, vol. 10(3), pages 211-28, May.
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