Gains and Losses from Tax Competition with Migration
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Authors
Honkapohja, Seppo
Turunen-Red, Arja
Publication Date
2004-06-16Series
Cambridge Working Papers in Economics
Publisher
Faculty of Economics
Language
en_GB
Type
Working Paper
Metadata
Show full item recordCitation
Honkapohja, S., & Turunen-Red, A. (2004). Gains and Losses from Tax Competition with Migration. https://doi.org/10.17863/CAM.4990
Abstract
We consider international labour (entrepreneur) mobility in a two-country overlapping-generations model. Interactions of decreasing and increasing returns in production yield multiple equilibria that are stable under adaptive learning. Governments have a unilateral incentive to reduce income taxes at the joint optimum. We compare the Nash equlibrium in taxes under full labour mobility to the closed economy with no mobility. Despite strategic tax setting, the free mobility outcome is often better in welfare terms. Large, discrete gains in welfare may be attained because of the tax competition. Expectational barriers for discrete welfare improvements can be overcome through tax competition.
Keywords
Classification-JEL: H87, F22, H21, tax policy, mobility of labour, multiple equilibria, expectation traps
Identifiers
This record's DOI: https://doi.org/10.17863/CAM.4990
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