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Redistributive taxation and migration under uncertainty



    () (Universidade Catolica Portuguesa, FCEE, Palma de Cima, 1600 Lisbon, Portugal)


Redistributive taxation under uncertainty has two functions: not only the redistribution of income across individuals who are ex ante different but also the sharing of risk between them. The economic integration of factor markets changes the distribution of income within each country, and so the redistributive policies must be changed to account for those changes. In this paper we show that, when mobile individuals are subject to a residence-based linear income tax, the optimal redistributive policy is dependent not only on the relative size of the economies but also on the timing of the migration process: under the small country hypothesis, there is no redistribution in equilibrium if workers’ migration decisions are taken with complete knowledge of incomes. If uncertainty is only solved after mobility has occurred, then it is possible to have redistributive taxation. In this latter case, the magnitude of the tax parameters depends on the size of the countries, i.e., on whether or not the home taxing authorities take foreign utilities as given.

Suggested Citation

  • LEITE-MONTEIRO, Manuel, 1997. "Redistributive taxation and migration under uncertainty," CORE Discussion Papers 1997086, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1997086

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    References listed on IDEAS

    1. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
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    3. Kim, Kiwhan & Schmidt, Peter, 1993. "Unit root tests with conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 59(3), pages 287-300, October.
    4. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-328, August.
    5. Caner, Mehmet, 1998. "Tests for cointegration with infinite variance errors," Journal of Econometrics, Elsevier, vol. 86(1), pages 155-175, June.
    6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    7. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    More about this item


    Tax competition; Income redistribution; Uncertainty; Labour migration;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration


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