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Tax Burden and Migration: a Political Economy Theory and Evidence

  • Razin, A.
  • Sadka, E.
  • Swagel, P.

The extent of taxation and redistribution policy is generally determined as a political-economy equilibrium by a balance between those who gain from higher taxes/transfers and those who lose. In a stylized model of migration and human capital formation, we show -- somewhat against the conventi onal wisdom -- that low-skill immigration may lead to a lower tax burden and less redistribution than would be the case with no immigration, even though migrants (naturally) join the pro-tax/transfer coalition. Data on 11 European countries over the period 1974 to 1992 are consistent with the implications of the theory: a higher share of immigrants in the populati on leads to a lower tax rate on labor income, even after controlling for the gen erosity and size of the welfare state, demographics, and the international exposure of the economy. As predicted by the theory, it is the increased share of low education immigrants that leads to the smaller tax burden.

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Paper provided by Tel Aviv in its series Papers with number 15-98.

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Length: 22 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:teavfo:15-98
Contact details of provider: Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
Phone: 972-3-640-9255
Fax: 972-3-640-5815
Web page: http://econ.tau.ac.il/foerder/about
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  1. Razin, A. & Sadka, E., 1992. "Resisting Migration: Wage Rigidity and Income Redistribution," Papers 28-94, Tel Aviv.
  2. Canova, Fabio & Ravn, Morten O, 1998. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," CEPR Discussion Papers 2038, C.E.P.R. Discussion Papers.
  3. Razin, A. & Sadka, E. & Swagel, P., 1998. "Tax Burden and Migration: a Political Economy Theory and Evidence," Papers 15-98, Tel Aviv.
  4. Assaf Razin & Efraim Sadka & Phillip Swagel, 2002. "The Aging Population and the Size of the Welfare State," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 900-918, August.
  5. Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997. "On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture," Journal of Public Economics, Elsevier, vol. 66(1), pages 99-126, October.
  6. Cremer, Helmuth & Pestieau, Pierre, 1998. "Social insurance, majority voting and labor mobility," Journal of Public Economics, Elsevier, vol. 68(3), pages 397-420, June.
  7. Marc Nerlove & Assaf Razin & Efraim Sadka & Robert K. von Weizsacker, 1990. "Tax Policy, Investments in Human and Physical Capital, and Productivity," NBER Working Papers 3531, National Bureau of Economic Research, Inc.
  8. Klaus F. Zimmermann, 1995. "Tackling the European Migration Problems," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 45-62, Spring.
  9. Razin, A. & Sadka, E., 1998. "Migration and Pension," Papers 16-98, Tel Aviv.
  10. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  11. Nerlove, Marc & Razin, Assaf & Sadka, Efraim & von Weizsacker, Robert K., 1993. "Comprehensive income taxation, investments in human and physical capital, and productivity," Journal of Public Economics, Elsevier, vol. 50(3), pages 397-406, March.
  12. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August.
  13. Saint-Paul, G., 1993. "Unemployment, Wage Rigidity, and the Returns to Education," DELTA Working Papers 93-11, DELTA (Ecole normale supérieure).
  14. Wacziarg, Romain & Alesina, Alberto, 1998. "Openness, Country Size and Government," Scholarly Articles 4553014, Harvard University Department of Economics.
  15. Assaf Razin & Efraim Sadka, 2000. "Interactions between International Migration and the Welfare State," CESifo Working Paper Series 337, CESifo Group Munich.
  16. Razin, Assaf & Sadka, Efraim, 1999. "Migration and pension with international capital mobility," Journal of Public Economics, Elsevier, vol. 74(1), pages 141-150, October.
  17. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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