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Migration, wages and fiscal competition

  • Jean Gabszewicz

    ()

    (CORE, Universite catholique de Louvain, Belgique)

  • Ornella Tarola

    ()

    (DAES, University of Rome, La Sapienza, Italy)

  • Skerdilajda Zanaj

    ()

    (CREA, Université du Luxembourg)

We analyze the effects of labor migration flows on income taxation between two countries (regions) differing by the size of their population and the level of productive efficiencies. 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 coun- try maximizes the tax receipt in order to provide the largest possible amount of public good. We prove the existence of an equilibrium for any configuration of wage and any different relative size of the countries (re- gions). Then, we compute and characterize the equilibrium for any set of parameters, size and wage differential. Finally, we show how equili- brium migration flows affect the level of income taxation in the origin and destination country.

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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 13-19.

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Date of creation: 2013
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Handle: RePEc:luc:wpaper:13-19
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  1. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September.
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  12. Justman, Moshe & Thisse, Jacques-François & van Ypersele, Tanguy, 2001. "Taking the Bite Out of Fiscal Competition," CEPR Discussion Papers 3109, C.E.P.R. Discussion Papers.
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  14. Grogger, Jeffrey & Hanson, Gordon H., 2011. "Income maximization and the selection and sorting of international migrants," Journal of Development Economics, Elsevier, vol. 95(1), pages 42-57, May.
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  16. Jonathan Hamiltonet & Pierre Pestieau, 2005. "Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria," Post-Print halshs-00754106, HAL.
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  20. Hansen, Nico A. & Kessler, Anke S., 2001. "(Non-)Existence of Equilibria in Multicommunity Models," Journal of Urban Economics, Elsevier, vol. 50(3), pages 418-435, November.
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