Tax Burden and Migration: a Political Economy Theory and Evidence

29 Pages Posted: 16 Nov 1998  

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Phillip Swagel

Northwestern University - Department of Economics; International Monetary Fund (IMF)

Date Written: September 1998

Abstract

The extent of taxation and redistribution policy is generally determined as a political-economy equilibrium by a balance between those who gain from higher taxes/transfers and those who lose. In a stylized model of migration and human capital formation, we show -- somewhat against the conventional wisdom -- that low-skill immigration may lead to a lower tax burden and less redistribution than would be the case with no immigration, even though migrants (naturally) join the pro-tax/transfer coalition. Data on 11 European countries over the period 1974 to 1992 are consistent with the implications of the theory: a higher share of immigrants in the population leads to a lower tax rate on labor income, even after controlling for the generosity and size of the welfare state, demographics, and the international exposure of the economy. As predicted by the theory, it is the increased share of low education immigrants that leads to the smaller tax burden.

Suggested Citation

Razin, Assaf and Sadka, Efraim and Swagel, Phillip, Tax Burden and Migration: a Political Economy Theory and Evidence (September 1998). NBER Working Paper No. w6734. Available at SSRN: https://ssrn.com/abstract=129928

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9712 (Phone)
+972 3 642 8074 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Phillip Swagel (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
IMF Room 10-612F
Washington, DC 20431
United States
(202) 623-7301 (Phone)
(202) 623-6343 (Fax)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
(847) 491-8219 (Phone)

Paper statistics

Downloads
24
Abstract Views
1,180