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Credible redistributive policies and migration across US States

  • Roc Armenter
  • Francesc Ortega

Does worker mobility undermine governments ability to redistribute income? This paper analyzes the experience of US states in the recent decades. We build a tractable model where both migration decisions and redistribution policies are endogenous. We calibrate the model to match skill premium and worker productivity at the state level, as well as the size and skill composition of migration flows. The calibrated model is able to reproduce the large changes in skill composition as well as key qualitative relationships of labor flows and redistribution policies observed in the data. Our results suggest that regional di¤erences in labor productivity are an important determinant of interstate migration. We use the calibrated model to compare the cross-section of redistributive policies with and without worker mobility. The main result of the paper is that interstate migration has induced substantial convergence in tax rates across US states, but no race to the bottom. Skill-biased in-migration has reduced the skill premium and the need for tax-based redistribution in the states that would have had the highest tax rates in the absence of mobility.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1022.

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Date of creation: Feb 2007
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Handle: RePEc:upf:upfgen:1022
Contact details of provider: Web page: http://www.econ.upf.edu/

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  2. Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "A positive theory of geographical mobility and social insurance," Seminar Papers 705, Stockholm University, Institute for International Economic Studies.
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  10. Coen-Pirani, Daniele, 2010. "Understanding gross worker flows across U.S. states," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 769-784, October.
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  15. Andrew Leigh, 2005. "Can Redistributive State Taxes Reduce Inequality?," CEPR Discussion Papers 490, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  16. Gordon B. Dahl, 2002. "Mobility and the Return to Education: Testing a Roy Model with Multiple Markets," RCER Working Papers 488, University of Rochester - Center for Economic Research (RCER).
  17. Bound, John & Groen, Jeffrey & Kezdi, G.Gabor & Turner, Sarah, 2004. "Trade in university training: cross-state variation in the production and stock of college-educated labor," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 143-173.
  18. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, vol. 49(3), pages 713-40, May.
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  20. Lutz Hendricks, 2004. "Why does educational attainment differ across U.S. states?," 2004 Meeting Papers 361, Society for Economic Dynamics.
  21. Armenter, Roc & Ortega, Francesc, 2011. "Credible redistribution policy and skilled migration," European Economic Review, Elsevier, vol. 55(2), pages 228-245, February.
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