Does competition for (human) capital discipline governments? The role of commitment

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Does competition for (human) capital discipline governments? The role of commitment

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Roc Armenter
Francesc Ortega () (Department of Economics Universitat Pompeu Fabra)

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Abstract

We argue that labor mobility does not lead to a ''race to the bottom,'' where countries drastically cut redistributive transfers in order to attract skilled workers. The basis of our argument is that these cuts are not credible policies. We propose a two country model where competition for mobile factors is limited to credible policies. Both countries end up with positive redistribution, and the country with a technological advantage can sustain more redistribution. The model can address the interaction of redistribution and migration policies. In particular, we show that when countries have similar skill endowments but different technologies, migration policies enabling unskilled labor mobility lead to higher global welfare than policies enabling skilled labor mobility

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 547.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:547

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
F15 - International Economics - - Trade - - - Economic Integration
F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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