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Tax Burden and Migration: A Political Economy Theory and Evidence

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  • Razin, Assaf
  • Sadka, Efraim
  • Swagel, Phillip

Abstract

The extent of taxation and redistribution policy is generally determined as a political-economy equilibrium by a balance between those who gain from higher taxes/transfers and those who lose. In a stylized model of migration and human capital formation we show — somewhat against the conventional wisdom — that low-skill immigration may lead to a lower tax burden and less redistribution than would be the case with no immigration, even though migrants (naturally) join the pro-tax/transfer coalition. Data on eleven European countries over the period 1974 to 1992 are consistent with the implications of the theory: A higher share of immigrants in the population leads to a lower tax rate on labor income, even after controlling for the generosity and size of the welfare state, demographics, and the international exposure of the economy. As predicted by the theory, it is the increased share of low education immigrants that leads to the smaller tax burden.

Suggested Citation

  • Razin, Assaf & Sadka, Efraim & Swagel, Phillip, 1998. "Tax Burden and Migration: A Political Economy Theory and Evidence," Foerder Institute for Economic Research Working Papers 275635, Tel-Aviv University > Foerder Institute for Economic Research.
  • Handle: RePEc:ags:isfiwp:275635
    DOI: 10.22004/ag.econ.275635
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    References listed on IDEAS

    as
    1. Razin, Assaf & Sadka, Efraim & Swagel, Phillip, 2002. "Tax burden and migration: a political economy theory and evidence," Journal of Public Economics, Elsevier, vol. 85(2), pages 167-190, August.
    2. Nerlove, Marc & Razin, Assaf & Sadka, Efraim & von Weizsacker, Robert K., 1993. "Comprehensive income taxation, investments in human and physical capital, and productivity," Journal of Public Economics, Elsevier, vol. 50(3), pages 397-406, March.
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    More about this item

    Keywords

    Financial Economics; International Relations/Trade; Political Economy;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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