Migration Elasticities, Fiscal Federalism and the Ability of States to Redistribute Income

37 Pages Posted: 6 Oct 2012

See all articles by Seth H. Giertz

Seth H. Giertz

School of Economic, Political and Policy Sciences

Mehmet Serkan Tosun

University of Nevada, Reno - Department of Economics; IZA Institute of Labor Economics

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Abstract

This paper develops a simulation model in order to examine the effectiveness of state attempts at redistribution under a variety of migration elasticity assumptions. Key outputs from the simulation include the impact of tax-induced migration on state revenues, excess burden, and fiscal externalities. With modest migration elasticities, the costs of state-level redistribution are substantial, but state action may still be preferred to a federal policy that is at odds with preferences of a state's citizens. At higher migration elasticities, the costs of state action can be tremendous. Overall excess burden is greater, but this is dominated by horizontal fiscal externalities. Horizontal fiscal externalities represent a cost to the state pursuing additional redistribution, but not a cost at the national level.

Keywords: fiscal externalities, fiscal federalism, income redistribution, excess burden, deadweight loss

JEL Classification: H21, H23, H71

Suggested Citation

Giertz, Seth H. and Tosun, Mehmet Serkan, Migration Elasticities, Fiscal Federalism and the Ability of States to Redistribute Income. IZA Discussion Paper No. 6798, Available at SSRN: https://ssrn.com/abstract=2157940 or http://dx.doi.org/10.2139/ssrn.2157940

Seth H. Giertz (Contact Author)

School of Economic, Political and Policy Sciences ( email )

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Mehmet Serkan Tosun

University of Nevada, Reno - Department of Economics ( email )

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United States
775-784-6678 (Phone)

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