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Income redistribution in open economies

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  • Tóbiás, Áron

Abstract

I propose a model of income redistribution in an open-economy environment. The world consists of a finite number of countries whose governments seek to maximize the welfare of their low-skilled populations by taxing skilled workers' labor income. While tax competition limits the extent to which redistribution is possible—as compared to the closed-economy outcome—when skilled people are internationally mobile, I argue that race to the bottom does not necessarily occur, even if the number of countries becomes arbitrarily large. The asymptotic sustainability of the welfare state crucially depends on the statistical properties of the probability distribution of skilled people's location preferences.

Suggested Citation

  • Tóbiás, Áron, 2016. "Income redistribution in open economies," Journal of Public Economics, Elsevier, vol. 134(C), pages 19-34.
  • Handle: RePEc:eee:pubeco:v:134:y:2016:i:c:p:19-34
    DOI: 10.1016/j.jpubeco.2015.12.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Income redistribution; International migration; Tax competition; Race to the bottom;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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