Working Paper: NBER ID: w22329
Authors: Assaf Razin; Efraim Sadka
Abstract: Federal governance matters. Policy coordination allows the economic union to exercise monopsony power over migrants. Therefore the migration volumes under the policy-competition regime exceed those under the policy-coordination regime. With loose federal governance, competition over low-skilled migrants, who come with no capital, induces the individual member state to raise the provision of social benefit, so as to attract more migrants when starting from the coordination equilibrium. As a result, the social benefits in all other member States must also be raised to keep these migrants at their own economy. This amounts to excessively high income redistribution – a negative fiscal externality.
Keywords: Migration; Redistribution; Federal Governance; Economic Union
JEL Codes: F15; H1; J18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loose federal governance in the EU (H77) | increased social benefits offered to attract low-skilled migrants (J68) |
| increased social benefits offered to attract low-skilled migrants (J68) | higher income redistribution among the native-born population (H23) |
| higher income redistribution among the native-born population (H23) | negative fiscal externality (D62) |
| policy-coordination regime (E61) | lower migration volumes compared to policy-competition regime (O24) |
| federal governance structure (H77) | migration outcomes (F22) |
| federal governance structure (H77) | fiscal implications of migration flows (H87) |