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Credible redistributive policies and migration across US States

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  • Roc Armenter
  • Francesc Ortega

Abstract

Does worker mobility undermine governments ability to redistribute income? This paper analyzes the experience of US states in the recent decades. We build a tractable model where both migration decisions and redistribution policies are endogenous. We calibrate the model to match skill premium and worker productivity at the state level, as well as the size and skill composition of migration flows. The calibrated model is able to reproduce the large changes in skill composition as well as key qualitative relationships of labor flows and redistribution policies observed in the data. Our results suggest that regional di¤erences in labor productivity are an important determinant of interstate migration. We use the calibrated model to compare the cross-section of redistributive policies with and without worker mobility. The main result of the paper is that interstate migration has induced substantial convergence in tax rates across US states, but no race to the bottom. Skill-biased in-migration has reduced the skill premium and the need for tax-based redistribution in the states that would have had the highest tax rates in the absence of mobility.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1022.

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Date of creation: Feb 2007
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Handle: RePEc:upf:upfgen:1022

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Web page: http://www.econ.upf.edu/

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Keywords: Migration; taxation; education; credibility;

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References

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  1. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2008. "Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants," NBER Working Papers 13833, National Bureau of Economic Research, Inc.
  2. Grogger, Jeffrey & Hanson, Gordon H., 2011. "Income maximization and the selection and sorting of international migrants," Journal of Development Economics, Elsevier, Elsevier, vol. 95(1), pages 42-57, May.
  3. Edward L. Glaeser & Albert Saiz, 2003. "The Rise of the Skilled City," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2025, Harvard - Institute of Economic Research.
  4. Lutz Hendricks, 2004. "Why Does Educational Attainment Differ Across U.S. States?," CESifo Working Paper Series 1335, CESifo Group Munich.
  5. Coen-Pirani, Daniele, 2010. "Understanding gross worker flows across U.S. states," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(7), pages 769-784, October.
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  8. Kennan,J. & Walker,J.R., 2003. "The effect of expected income on individual migration decisions," Working papers, Wisconsin Madison - Social Systems 7, Wisconsin Madison - Social Systems.
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  12. Gordon B. Dahl, 2002. "Mobility and the Return to Education: Testing a Roy Model with Multiple Markets," Econometrica, Econometric Society, Econometric Society, vol. 70(6), pages 2367-2420, November.
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  16. Christian Bayer & Falko Juessen, 2006. "A generalized options approach to aggregate migration with an application to US federal states," 2006 Meeting Papers, Society for Economic Dynamics 656, Society for Economic Dynamics.
  17. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, Econometric Society, vol. 49(3), pages 713-40, May.
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  20. Armenter, Roc & Ortega, Francesc, 2011. "Credible redistribution policy and skilled migration," European Economic Review, Elsevier, Elsevier, vol. 55(2), pages 228-245, February.
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Cited by:
  1. Christian Bayer & Falko Juessen, 2012. "On the Dynamics of Interstate Migration: Migration Costs and Self-Selection," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 377-401, July.
  2. Giuranno, Michele G. & Rongili, Biswas, 2012. "Inter-jurisdictional migration and the size of government," MPRA Paper 42604, University Library of Munich, Germany.
  3. Daniele Coen-Pirani, 2006. "Understanding Gross Workers Flows Across U.S. States," 2006 Meeting Papers, Society for Economic Dynamics 459, Society for Economic Dynamics.
  4. Armenter, Roc & Ortega, Francesc, 2011. "Credible redistribution policy and skilled migration," European Economic Review, Elsevier, Elsevier, vol. 55(2), pages 228-245, February.

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