TY - JOUR
T1 - MIGRATION into the WELFARE STATE
T2 - Tax and migration competition
AU - Razin, Assaf
PY - 2013/8
Y1 - 2013/8
N2 - Despite big gains from easing restrictions on international labor mobility, liberalizing migration flows is not pursued unilaterally or negotiated among countries in a way that international trade negotiations are pursued. Among several key explanations is the fiscal burden imposed by immigration on native-born. The paper focuses on a central tension faced by policy makers in countries that receive migrants from lower wage countries. Such countries are typically high productivity and capital rich, and the resulting high wages attract both skilled and unskilled migrants. A generous welfare state may attract low-skill migration deter skilled migration, since it is likely to be accompanied by higher redistributive taxes. Assuming that a group of host countries faces an upward supply of immigrants, the analysis demonstrates that tax competition does not indeed lead to a race to the bottom; competition may lead to higher taxes than coordination. There exists a fiscal externality (fiscal leakage) that causes tax rates (on both labor and capital), and the volume of migration (of both skill types), to be higher in the competitive regime than in the coordinated regime.
AB - Despite big gains from easing restrictions on international labor mobility, liberalizing migration flows is not pursued unilaterally or negotiated among countries in a way that international trade negotiations are pursued. Among several key explanations is the fiscal burden imposed by immigration on native-born. The paper focuses on a central tension faced by policy makers in countries that receive migrants from lower wage countries. Such countries are typically high productivity and capital rich, and the resulting high wages attract both skilled and unskilled migrants. A generous welfare state may attract low-skill migration deter skilled migration, since it is likely to be accompanied by higher redistributive taxes. Assuming that a group of host countries faces an upward supply of immigrants, the analysis demonstrates that tax competition does not indeed lead to a race to the bottom; competition may lead to higher taxes than coordination. There exists a fiscal externality (fiscal leakage) that causes tax rates (on both labor and capital), and the volume of migration (of both skill types), to be higher in the competitive regime than in the coordinated regime.
KW - Controlled migration
KW - Generosity of the welfare state
KW - Tax completion vs. tax coordination
UR - http://www.scopus.com/inward/record.url?scp=84881031119&partnerID=8YFLogxK
U2 - 10.1007/s10797-013-9282-z
DO - 10.1007/s10797-013-9282-z
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AN - SCOPUS:84881031119
SN - 0927-5940
VL - 20
SP - 548
EP - 563
JO - International Tax and Public Finance
JF - International Tax and Public Finance
IS - 4
ER -