Income Redistribution in Open Economies

58 Pages Posted: 9 Jun 2015

Date Written: May 31, 2015


I propose a model of income redistribution in an open-economy environment. The world consists of a finite number of countries whose governments seek to maximize the welfare of their low-skilled populations by taxing skilled workers’ labor income. While tax competition limits the extent to which redistribution is possible — as compared to the closed-economy outcome — when skilled people are internationally mobile, I argue that race to the bottom does not necessarily occur, even if the number of countries becomes arbitrarily large. The asymptotic sustainability of the welfare state crucially depends on the statistical properties of the probability distribution of skilled people’s location preferences.

Keywords: income redistribution, international migration, tax competition, race to the bottom

JEL Classification: D820, F220, H210, H730

Suggested Citation

Tóbiás, Áron, Income Redistribution in Open Economies (May 31, 2015). CESifo Working Paper Series No. 5378, Available at SSRN: or

Áron Tóbiás (Contact Author)

Syracuse University ( email )

110 Eggers Hall
Syracuse University
Syracuse, NY 13244-1020
United States


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