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Tax Competition and Migration: The Race-to-the-Bottom Hypothesis Revisited

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  • Assaf Razin
  • Efraim Sadka

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 paper 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.

Suggested Citation

  • Assaf Razin & Efraim Sadka, 2011. "Tax Competition and Migration: The Race-to-the-Bottom Hypothesis Revisited," NBER Working Papers 16670, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16670
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    References listed on IDEAS

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    1. Razin, Assaf & Sadka, Efraim, 1991. "International tax competition and gains from tax harmonization," Economics Letters, Elsevier, vol. 37(1), pages 69-76, September.
    2. Assaf Razin & Efraim Sadka, 2010. "Fiscal and Migration Competition," NBER Working Papers 16224, National Bureau of Economic Research, Inc.
    3. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    4. Mendoza, Enrique G. & Tesar, Linda L., 2005. "Why hasn't tax competition triggered a race to the bottom? Some quantitative lessons from the EU," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 163-204, January.
    5. Lans Bovenberg & Sijbren Cnossen & Ruud de Mooij, 2003. "Introduction: Tax Coordination in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 619-624, November.
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    Cited by:

    1. Chirinko, Robert S. & Wilson, Daniel J., 2017. "Tax competition among U.S. states: Racing to the bottom or riding on a seesaw?," Journal of Public Economics, Elsevier, vol. 155(C), pages 147-163.
    2. Soojin Kim, 2014. "The Effects of Labor Migration on Optimal Taxation: An International Tax Competition Analysis," 2014 Meeting Papers 508, Society for Economic Dynamics.

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    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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