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Fiscal Competition and Migration Patterns

Author

Listed:
  • Patrice Pieretti

    (DEM, Université du Luxembourg)

  • Giuseppe Pulina

    (Banque Centrale du Luxembourg)

  • Andreas Sintos

    (DEM, Université du Luxembourg)

  • Skerdilajda Zanaj

    (DEM, Université du Luxembourg)

Abstract

In this paper, we model migration patterns as the outcome of strategic public policies adopted by competing jurisdictions. We assume that two economies, distinguished by different technological levels, host a continuum of mobile individuals with varying skill levels. To maximize their net revenues, governments compete for mobile workers by taxing wages and providing a public good that enhances firm productivity (public input). We show that the most skilled workers migrate to the technologically advanced economy. However, by offering lower taxes or more public inputs, the less technologically developed country can retain part of its skilled labor force and attract skilled workers from abroad, albeit not the most qualified. As a result, a two-way migration pattern emerges, driven by governments’ strategic policy choices. Finally, the introduction of heterogeneity in population size does not significantly alter the results.

Suggested Citation

  • 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.
    • Handle: RePEc:luc:wpaper:24-04
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    File URL: https://hdl.handle.net/10993/61239
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    More about this item

    Keywords

    Bilateral migration; Tax competition; Heterogeneous skills; Technological gap; Policy competition.;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F60 - International Economics - - Economic Impacts of Globalization - - - General

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