Working Paper: CEPR ID: DP15902
Authors: Assaf Razin; Efraim Sadka
Abstract: Both the U.S. and the EU are an economic union: There is a single market for goods, capital, finance, and labor. That is, there is free mobility of goods and services, physical and financial capital, and labor among the member countries of the union. Nevertheless, there is much higher degree of economic policy coordination among the member states of the U.S than of the EU. For instance, the U.S. has a common (federal) income tax system which constitutes the major source of revenues in the union. Similarly, the social security system is more or less uniform across the U.S. There is also a single migration policy set up and enforced by the federal government. In contrast, there is very little coordination on these issues among the member countries of the EU. We argue by using a migration-based, fiscal-externality, model that the degree of coordination among the member states potentially contribute a great deal to our understanding of observed policy differences between the EU and the US as economic unions: the generosity of the welfare state and the skill composition of migration.
Keywords: N/A
JEL Codes: N/A
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| federal governance structure in the US (H77) | different migration outcomes (F22) |
| welfare state generosity (I38) | low-skill migration (J61) |
| high-skill migration (J61) | economic performance (P17) |
| differences in welfare state (I38) | migration patterns (F22) |
| US welfare state (I38) | higher share of educated migrants (I25) |