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Migration, wage differentials and fiscal competition



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

  • TAROLA, Ornella


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

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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011065.

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Date of creation: 22 Dec 2011
Date of revision:
Handle: RePEc:cor:louvco:2011065
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  1. Laussel, Didier & Le Breton, Michel, 1998. "Existence of Nash equilibria in fiscal competition models," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 283-296, May.
  2. Korobilis, Dimitris, 2009. "VAR forecasting using Bayesian variable selection," MPRA Paper 21124, University Library of Munich, Germany.
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  4. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP 804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  13. PIASER, Gwenaël, 2003. "Labor mobility and income tax competition," CORE Discussion Papers 2003006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
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  17. Wallace E. Oates, 1968. "The Theory of Public Finance in a Federal System," Canadian Journal of Economics, Canadian Economics Association, vol. 1(1), pages 37-54, February.
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