Working Paper: NBER ID: w16670
Authors: 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.
Keywords: tax competition; tax coordination; fiscal externality
JEL Codes: F2; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax competition (H26) | higher tax rates on labor and capital (H31) |
| migration inflows (F22) | tax rate adjustments (H29) |
| higher migration volume (F22) | higher tax rates (H29) |
| tax competition (H26) | higher migration volume (F22) |
| higher migration volume (F22) | increased tax rates to fund public services (H29) |