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Tax Burden and Migration

  • Razin, Assaf

    (Eitan Berglas School of Economics, Tel Aviv University)

  • Sadka, Efraim

    (Eitan Berglas School of Economics, Tel Aviv University)

  • Swagel, Phillip

    (Research Department, International Monetary Fund)

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 conventional 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 population leads to a lower tax rate on labor income, with the effect statistically significant even after controlling for the generosity 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 Institute for Advanced Studies in its series Economics Series with number 59.

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Length: 22 pages
Date of creation: Nov 1998
Date of revision:
Handle: RePEc:ihs:ihsesp:59
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