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Returns to Skill, Tax Policy, and North American Migration by Skill Level: Canada and the United States 1995 - 2001

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Author Info

  • Hunt, Gary L.
  • Mueller, Richard E.

Abstract

Higher after-tax returns to skill in U.S. states compared to Canadian provinces have raised the issue that higher skilled Canadian workers especially will find migration to the U.S. economically attractive, and especially so after the North American Free Trade Agreement (NAFTA), provisions of which facilitate such cross-country migration through special visas. In this study we develop, estimate, and simulate a nested logit model of migration among 59 Canadian and U.S. sub-national areas using over 70,000 microdata observations on workers across all deciles of the skill distribution obtained from the U.S. and Canadian censuses of 2000/2001 Combining microdata on individual workers with area data, including estimates of after-tax returns by skill decile based on standardized wage distributions and large scale microsimulation tax models for Canadian provinces and U.S. states, we are able to consider the effects of tax policy differences across countries on worker migration. Our ability to identify highly skilled individuals using these data enables us to simulate the effects of changes to taxes (under balanced budget conditions) on the migration propensities of individuals as well as the magnitude of the aggregate migration streams. Simulations suggest that increasing Canadian after-tax returns to skill and implementing fiscal equalization (reducing the average Canadian tax rate to the average U.S. level with offsetting expenditure reductions to maintain budget neutrality) would effectively reduce southward migration and especially so amongst highly skilled workers. The required reductions in tax rates and public expenditures are relatively large however and therefore would be expected to raise other substantial public policy concerns.

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File URL: http://www.clsrn.econ.ubc.ca/workingpapers/CLSRN%20Working%20Paper%20no.%2058%20-%20Hunt%20and%20Mueller.pdf
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Bibliographic Info

Paper provided by Vancouver School of Economics in its series CLSSRN working papers with number clsrn_admin-2010-11.

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Length: 50 pages
Date of creation: 26 Mar 2010
Date of revision: 26 Mar 2010
Handle: RePEc:ubc:clssrn:clsrn_admin-2010-11

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Web page: http://www.clsrn.econ.ubc.ca/

Related research

Keywords: International migration; Returns to skill; Taxes; Regional integration;

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References

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  1. Graves, Philip E., 1983. "Migration with a composite amenity: the role of rents," MPRA Paper 19917, University Library of Munich, Germany.
  2. Greenwood, Michael J, 1975. "Research on Internal Migration in the United States: A Survey," Journal of Economic Literature, American Economic Association, vol. 13(2), pages 397-433, June.
  3. Greenwood, Michael J. & Hunt, Gary L., 1989. "Jobs versus amenities in the analysis of metropolitan migration," Journal of Urban Economics, Elsevier, vol. 25(1), pages 1-16, January.
  4. Jim Davies, 2003. "Empirical Evidence on Human Capital Externalities," University of Western Ontario, Economic Policy Research Institute Working Papers 20035, University of Western Ontario, Economic Policy Research Institute.
  5. Gary L. Hunt & Richard E. Mueller, 2004. "North American Migration: Returns to Skill, Border Effects, and Mobility Costs," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 988-1007, November.
  6. George J. Borjas & Stephen G. Bronars & Stephen J. Trejo, 1992. "Self-Selection and Internal Migration in the United States," NBER Working Papers 4002, National Bureau of Economic Research, Inc.
  7. Gary L. Hunt & Richard E. Mueller, 2002. "A Methodology for Estimating Returns to Skills for Canadian Provinces and U.S. States," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 127-143.
  8. Kathleen M. Day, 1992. "Interprovincial Migration and Local Public Goods," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 123-44, February.
  9. Kathleen Day & Stanley Winer, 2006. "Policy-induced internal migration: An empirical investigation of the Canadian case," International Tax and Public Finance, Springer, vol. 13(5), pages 535-564, September.
  10. Gary L. Hunt, 2000. "Alternative Nested Logit Model Structures and the Special Case of Partial Degeneracy," Journal of Regional Science, Wiley Blackwell, vol. 40(1), pages 89-113.
  11. René Böheim & Karin Mayr, 2005. "Immigration and public spending," Economics working papers 2005-12, Department of Economics, Johannes Kepler University Linz, Austria.
  12. Koppelman, Frank S. & Wen, Chieh-Hua, 1998. "Alternative nested logit models: structure, properties and estimation," Transportation Research Part B: Methodological, Elsevier, vol. 32(5), pages 289-298, June.
  13. Knapp, Thomas A. & Graves, Philip E., 1989. "On the role of amenities in models of migration and regional development," MPRA Paper 19914, University Library of Munich, Germany.
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