NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Migration Can Change Income Inequality?

Assaf Razin, Efraim Sadka

NBER Working Paper No. 22191
Issued in April 2016, Revised in October 2016
NBER Program(s):International Finance and Macroeconomics

Motivated by the unique experience of Israel of a supply-side shock of skilled migration, and the concurrent rise in disposable income inequality, this paper develops a model which can explain the mechanism through which a supply-side shock of skilled migration can reshape the political-economy balance and the redistributive policies. First, it depresses the incentives for unskilled migrants to flow in, though they are still free to do so. Second, tax-transfer system becomes less progressive. Nonetheless, the unskilled native-born may well become better-off, even though they lose their political clout.

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Document Object Identifier (DOI): 10.3386/w22191

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