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Migration into the Welfare State: Tax and Migration Competition

Listed author(s):
  • Assaf Razin

In this paper I provide some support to the Tiebout hypothesis. It suggests that when a group of host countries faces an upward supply of immigrants, tax competition does not indeed lead to a race to the bottom; competition may lead to higher taxes than coordination. We identify a fiscal externality (fiscal leakage) that causes tax rates (on both labor and capital), and the volume of migration (of both skill types), to be higher in the competitive regime than in the coordinated regime. If the population growth rate is positive the young are always in the majority. When raising period t payroll taxes the young voter has a tradeoff between the negative effect ( an income transfer to the old) and a general equilibrium income boosting effect on her private pension in period t+1 and the social security benefit in period t+1. Tax rate is positive if the (state variable) the capital stock is within a certain range, or zero, otherwise. Migration share of native born population is at the max if the state variable, the capital stock, is in the above mentioned range, or intermediate level, otherwise. In the case of private saving only regime, the migration share is intermediate level. Thus, migration shares in the social security-cum-private-savings regime are either the same, or is more liberal than in the private savings-only regime. A social security system effectively create an incentive, through the political-economy mechanism, for a country to bring in migrants.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-05/cesifo1_wp4230.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4230.

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Date of creation: 2013
Handle: RePEc:ces:ceswps:_4230
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  1. Eric Hanushek & Ludger Woessmann, 2012. "Do better schools lead to more growth? Cognitive skills, economic outcomes, and causation," Journal of Economic Growth, Springer, vol. 17(4), pages 267-321, December.
  2. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
  3. Facchini, Giovanni & Willmann, Gerald, 2005. "The political economy of international factor mobility," Journal of International Economics, Elsevier, vol. 67(1), pages 201-219, September.
  4. Assaf Razin & Jackline Wahba, 2015. "Welfare Magnet Hypothesis, Fiscal Burden, and Immigration Skill Selectivity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(2), pages 369-402, 04.
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  7. Giovanni Facchini & Assaf Razin & Gerald Willmann, 2004. "Welfare Leakage and Immigration Policy," CESifo Economic Studies, CESifo, vol. 50(4), pages 627-645.
  8. Phillip B. Levine & David J. Zimmerman, 1999. "An empirical analysis of the welfare magnet debate using the NLSY," Journal of Population Economics, Springer;European Society for Population Economics, vol. 12(3), pages 391-409.
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  10. Casarico, Alessandra & Devillanova, Carlo, 2003. "Social security and migration with endogenous skill upgrading," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 773-797, March.
  11. Nicolas Péridy, 2006. "The European Union and its new neighbors: an estimation of migration potentials," Economics Bulletin, AccessEcon, vol. 6(2), pages 1-11.
  12. De Giorgi, Giacomo & Pellizzari, Michele, 2009. "Welfare migration in Europe," Labour Economics, Elsevier, vol. 16(4), pages 353-363, August.
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  17. repec:ebl:ecbull:v:6:y:2006:i:2:p:1-11 is not listed on IDEAS
  18. Assaf Razin & Efraim Sadka, 2004. "Welfare Migration: Is the Net Fiscal Burden a Good Measure of its Economic Impact on the Welfare of the Native-Born Population?," CESifo Economic Studies, CESifo, vol. 50(4), pages 709-716.
  19. Gordon H. Hanson & Kenneth Scheve & Matthew J. Slaughter, 2007. "Public Finance And Individual Preferences Over Globalization Strategies," Economics and Politics, Wiley Blackwell, vol. 19(1), pages 1-33, 03.
  20. Terra McKinnish, 2005. "Importing the Poor: Welfare Magnetism and Cross-Border Welfare Migration," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
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  22. Enchautegui, Maria E, 1997. "Welfare Payments and Other Economic Determinants of Female Migration," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 529-554, July.
  23. Rosanne Altshuler & Timothy J. Goodspeed, 2015. "Follow the Leader? Evidence on European and US Tax Competition," Public Finance Review, , vol. 43(4), pages 485-504, July.
  24. Walmsley, Terrie L. & Winters, L. Alan, 2005. "Relaxing the Restrictions on the Temporary Movement of Natural Persons: A Simulation Analysis," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 688-726.
  25. Jim Dolmas & Gregory W. Huffman, 2004. "On The Political Economy Of Immigration And Income Redistribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1129-1168, November.
  26. Xavier Mateos-Planas, 2010. "Demographics and the Politics of Capital Taxation in a Life-Cycle Economy," American Economic Review, American Economic Association, vol. 100(1), pages 337-363, March.
  27. Blank, Rebecca M., 1988. "The effect of welfare and wage levels on the location decisions of female-headed households," Journal of Urban Economics, Elsevier, vol. 24(2), pages 186-211, September.
  28. Assaf Razin & Efraim Sadka & Benjarong Suwankiri, 2009. "Migration and the welfare state: Dynamic Political-Economy Theory," NBER Working Papers 14784, National Bureau of Economic Research, Inc.
  29. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March.
  30. Razin, Assaf & Sadka, Efraim, 1999. "Migration and pension with international capital mobility," Journal of Public Economics, Elsevier, vol. 74(1), pages 141-150, October.
  31. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
  32. McKinnish, Terra, 2007. "Welfare-induced migration at state borders: New evidence from micro-data," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 437-450, April.
  33. J. R. Walker, "undated". "Migration amoung low-income households: Helping the witch doctors reach consensus," Institute for Research on Poverty Discussion Papers 1031-94, University of Wisconsin Institute for Research on Poverty.
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