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Migration, wage differentials and fiscal competition

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  • GABSZEWICZ, Jean

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • TAROLA, Ornella

    () (University of Rome “La Sapienza”, DTE, Italy)

Abstract

We analyze the effects, on nonredistributive taxation and on migrations, of wage differentials existing between two countries (regions) differing by the size of their population. Residents, otherwise identical, are heterogeneous because they incur different migration costs. Each resident compares the post-tax amount of money at home with the one obtained abroad, including the cost of migration. The government in each country maximizes the tax product in order to provide the largest possible amount of public good. We first assume that the income of citizens are identical across countries. Then, we assume that wages differ from one country to the other. We prove the existence of an equilibrium for any configuration of wage and any different relative size of the countries (regions). Then, we compute and characterize the equilibrium for any set of parameters, size and wage differential.

Suggested Citation

  • GABSZEWICZ, Jean & TAROLA, Ornella, 2011. "Migration, wage differentials and fiscal competition," CORE Discussion Papers 2011065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2011065
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    References listed on IDEAS

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    Keywords

    migration; taxation; wage differentials;

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