Working Paper: NBER ID: w19282
Authors: Assaf Razin; Efraim Sadka
Abstract: We develop a stylized EU-type model of a union consisting of rich, capital-abundant and high productivity countries, and poor, capital-scarce and low productivity countries. We address two main issues: the efficiency of tax competition and the effect of factor mobility on the size of the welfare state. We identify a fiscal externality which impairs the efficiency of tax competition. We also demonstrate how capital mobility within the union strengthens the competition over migrants from outside of the union.
Keywords: Migration; Fiscal Competition; Welfare State
JEL Codes: F22; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax competition (H26) | inefficiencies (D61) |
| inefficiencies (D61) | reduced efficiency of tax rates and welfare benefits (H21) |
| capital mobility (F20) | increased competition for migrants (F22) |
| increased competition for migrants (F22) | increased migration flows (F22) |
| tax competition (H26) | competition for migrants (F22) |
| competition for migrants (F22) | higher welfare benefits offered by rich countries (I31) |
| higher welfare benefits offered by rich countries (I31) | increased number of migrants (F22) |