NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Assaf Razin, Efraim Sadka

NBER Working Paper No. 16670
Issued in January 2011
NBER Program(s):   IFM

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.

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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w16670

Assaf Razin and Efraim Sadka "Tax Competition and Migration: The Race ‐ to ‐ the ‐ Bottom Hypothesis Revisited" forthcoming in CESifo Economic Studies , Volume 58, Number 1, March 2012, Oxford University Press.

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