Gains and losses from tax competition with migration
AbstractWe consider international labor (entrepreneur) mobility in a two-country overlapping-generations model. Interactions of decreasing and increasing returns in production yield multiple equilibria that are stable under adaptive learning. Governments have an unilateral incentive to reduce income taxes at the joint optimum. We compare the Nash equilibrium in taxes under full labor mobility to the closed economy with no mobility. Despite strategic tax setting, the free mobility outcome is often better in welfare terms. Large, discrete gains in welfare may be attained because of the tax competition. Expectational barriers for discrete welfare improvements can be overcome through tax competition.
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Bibliographic InfoPaper provided by University of New Orleans, Department of Economics and Finance in its series Working Papers with number 2004-01.
Length: 33 pages
Date of creation: 17 Feb 2004
Date of revision:
Tax policy; Mobility of labor; Multiple equilibria; Expectation traps;
Other versions of this item:
- Honkapohja ,S. & Turunen-Red, A., 2004. "Gains and Losses from Tax Competition with Migration," Cambridge Working Papers in Economics 0416, Faculty of Economics, University of Cambridge.
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-03 (All new papers)
- NEP-PBE-2005-04-03 (Public Economics)
- NEP-URE-2005-04-03 (Urban & Real Estate Economics)
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