Tax competition and migration: The race-to-the-bottom hypothesis revisited

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Abstract

Oates reminds us that tax competition among localities in the presence of capital mobility, may lead to inefficiently low tax rates (and benefits). In contrast, the Tiebout paradigm suggests that tax competition yields an efficient outcome, so that there are no gains from tax coordination. This article demonstrates that when a group of host countries faces an upward supply of migrants, labor and capital income tax rate under competition are higher than under tax coordination, due to a fiscal externality.

Original languageEnglish
Article numberifr029
Pages (from-to)164-180
Number of pages17
JournalCESifo Economic Studies
Volume58
Issue number1
DOIs
StatePublished - Mar 2012

Keywords

  • Fiscal policy
  • Government expenditures and welfare programs
  • International migration
  • Public finance
  • Taxation

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