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Tax Burden and Migration: A Political Economy Theory and Evidence

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  • Assaf Razin
  • Effraim Sadka
  • Phillip Swagel

Abstract

The extent of taxation and redistribution policy is generally determined as a political-economy equilibrium by a balance between those who gain from higher taxes/transfers and those who lose. In a stylized model of migration and human capital formation, we show -- somewhat against the conventional wisdom -- that low-skill immigration may lead to a lower tax burden and less redistribution than would be the case with no immigration, even though migrants (naturally) join the pro-tax/transfer coalition. Data on 11 European countries over the period 1974 to 1992 are consistent with the implications of the theory: a higher share of immigrants in the population leads to a lower tax rate on labor income, even after controlling for the generosity and size of the welfare state, demographics, and the international exposure of the economy. As predicted by the theory, it is the increased share of low education immigrants that leads to the smaller tax burden.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6734.

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Date of creation: Sep 1998
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Publication status: published as Razin, Assaf, Efraim Sadka and Phillip Swagel. "Tax Burden And Migration: A Political Economy Theory And Evidence," Journal of Public Economics, 2002, v85(2,Aug), 167-190.
Handle: RePEc:nbr:nberwo:6734

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  1. Nerlove, Marc & Razin, Assaf & Sadka, Efraim & von Weizsacker, Robert K., 1993. "Comprehensive income taxation, investments in human and physical capital, and productivity," Journal of Public Economics, Elsevier, vol. 50(3), pages 397-406, March.
  2. Razin, Assaf & Sadka, Efraim, 1999. "Migration and pension with international capital mobility," Journal of Public Economics, Elsevier, vol. 74(1), pages 141-150, October.
  3. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September.
  4. Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997. "On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture," Journal of Public Economics, Elsevier, vol. 66(1), pages 99-126, October.
  5. Saint-Paul, G., 1993. "Unemployment, Wage Rigidity, and the Returns to Education," DELTA Working Papers 93-11, DELTA (Ecole normale supérieure).
  6. Efraim Sadka & Assaf Razin, 1998. "Migration and Pension," IMF Working Papers 98/165, International Monetary Fund.
  7. Cremer, Helmuth & Pestieau, Pierre, 1998. "Social insurance, majority voting and labor mobility," Journal of Public Economics, Elsevier, vol. 68(3), pages 397-420, June.
  8. Fabio Canova & Morten O. Ravn, 2000. "The macroeconomic effects of German unification: Real adjustments and the welfare state," Economics Working Papers 442, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Razin, A. & Sadka, E. & Swagel, P., 2000. "The Aging Population and the Size of the Welfare State," Papers 2000-23, Tel Aviv.
  10. Assaf Razin & Effraim Sadka & Phillip Swagel, 1998. "Tax Burden and Migration: A Political Economy Theory and Evidence," NBER Working Papers 6734, National Bureau of Economic Research, Inc.
  11. Razin, A. & Sadka, E., 1992. "Resisting Migration: Wage Rigidity and Income Redistribution," Papers 28-94, Tel Aviv.
  12. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  13. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  14. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August.
  15. Assaf Razin & Efraim Sadka, 2000. "Interactions between International Migration and the Welfare State," CESifo Working Paper Series 337, CESifo Group Munich.
  16. Marc Nerlove & Assaf Razin & Efraim Sadka & Robert K. von Weizsacker, 1990. "Tax Policy, Investments in Human and Physical Capital, and Productivity," NBER Working Papers 3531, National Bureau of Economic Research, Inc.
  17. Klaus F. Zimmermann, 1995. "Tackling the European Migration Problems," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 45-62, Spring.
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