There is a widespread concern that a greater mobility of individuals can undermine any attempt to redistribute income at the local level. In this paper we derive the equilibrium level of redistribution when both the rich and the poor are mobile (although in different degrees) and when each jurisdiction chooses its redistributive policy by majority voting. This leads to a fundamental interaction whereby the policy choices of jurisdictions determine who they attract, and who they attract determines their policy choices. Our main findings are twofold. First, we show that a greater mobility of the poor can increase the equilibrium amount of redistribution. Second, we find that some jurisdictions can be stuck in equilibrium on the RwrongS side of their Laffer curve. The reason is that the poor are in a majority in these jurisdictions and they oppose to a potentially Pareto improving tax reduction because it would attract the rich and shift the majority.
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Paper provided by University of Exeter, School of Business and Economics in its series Discussion Papers with number
99/15.
Length: 20 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:exetec:99/15
Contact details of provider: Postal: School of Business and Economics University of Exeter Streatham Court Rennes Drive Exeter EX4 4PU Phone: (01392) 263218 Fax: (01392) 263242 Web page: http://www.exeter.ac.uk/sobe/ More information through EDIRC
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue R51 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
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