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Migration, wages and income taxes

Author

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  • Jean Gabszewicz

    (Universite catholique de Louvain)

  • Ornella Tarola

    (University of Rome “La Sapienza”)

  • Skerdilajda Zanaj

    (University of Luxembourg)

Abstract

We analyze labor migration flows between two countries (regions) with different-sized populations and different levels of productive efficiencies to determine the effects of such flows on income taxation. The residents are heterogeneous because they incur different migration costs, although they are otherwise identical. Each resident compares her post-tax revenue at home with that obtained abroad, including migration costs, and each country’s government maximizes tax receipts. We study the existence of an equilibrium for any configuration of wages and for any difference in the relative sizes of the countries (regions). Then, we compute and characterize the equilibrium, whenever it exists, for any set of parameters, sizes and wage differentials. Finally, we show that equilibrium migration flows affect the level of income taxation in both the origin and destination countries.

Suggested Citation

  • Jean Gabszewicz & Ornella Tarola & Skerdilajda Zanaj, 2016. "Migration, wages and income taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 434-453, June.
    • Handle: RePEc:kap:itaxpf:v:23:y:2016:i:3:d:10.1007_s10797-015-9370-3
    DOI: 10.1007/s10797-015-9370-3
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    Cited by:

    1. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1123-1196, Elsevier.
    2. Augusto Cerqua & Guido Pellegrini & Ornella Tarola, 2022. "Can regional policies shape migration flows?," Papers in Regional Science, Wiley Blackwell, vol. 101(3), pages 515-536, June.
    3. Patrice Pieretti & Giuseppe Pulina & Skerdilajda Zanaj, 2024. "Fiscal competition and two-way migration," BCL working papers 183, Central Bank of Luxembourg.
    4. Patrice Pieretti & Giuseppe Pulina & Andreas Sintos & Skerdilajda Zanaj, 2024. "Fiscal Competition and Migration Patterns," DEM Discussion Paper Series 24-04, Department of Economics at the University of Luxembourg.
    5. Yutao Han & Patrice Pieretti, 2020. "On tax competition, international migration, and occupational choice," DEM Discussion Paper Series 20-07, Department of Economics at the University of Luxembourg.

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    More about this item

    Keywords

    Migration; Income tax; Fiscal competition;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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