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Artificial Time Inconsistency as a Remedy for the Race to the Bottom (new title: Delayed Integration as a Possible Remedy for the Race to the Bottom)

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  • Alfons J. Weichenrieder
  • Oliver Busch
  • Alfons Weichenrieder

Abstract

A long-standing concern in the literature has been that household mobility implies a serious threat to the viability of redistributive taxation. This paper considers the effects of deferred integration of migrants into the redistributive system of the target country. In a model of symmetric regions, deferred integration introduces a time consistency problem into governments' tax plans which reduces a region's incentive to undercut other regions' tax rates and can bring tax competition to a halt. On the one hand, rich migrants cease to benefit from the lower tax rate in the current period. On the other hand, the region's promise of a continuing low rate in the future is not credible. We also explore the case where poor recipients of social assistance are mobile while the rich are immobile.

Suggested Citation

  • Alfons J. Weichenrieder & Oliver Busch & Alfons Weichenrieder, 2005. "Artificial Time Inconsistency as a Remedy for the Race to the Bottom (new title: Delayed Integration as a Possible Remedy for the Race to the Bottom)," CESifo Working Paper Series 1637, CESifo.
  • Handle: RePEc:ces:ceswps:_1637
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    References listed on IDEAS

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    More about this item

    Keywords

    tax competition; federalism; mobility; social assistance; time consistency;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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