Migration State and Welfare State: Competition vs. Coordination in Economic Unions

28 Pages Posted: 20 Oct 2015

See all articles by Assaf Razin

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

Date Written: October 2015

Abstract

We develop a model of an economic union with income redistribution, facing upward supplies of immigrants of various skills and wealth. We compare the policy competition equilibrium of the model to the coordination equilibrium. The model predicts that the completion equilibrium will be with a more generous welfare state (higher taxes) with more low skilled immigrants than the coordination equilibrium. The explanation is based on fiscal externalities due to income differences in the native born and immigrant populations. We argue that this type of a difference between the U.S. and the EU - the degree of coordination among the member states -- contributes to our understanding of observed policy differences between these two otherwise similar unions: the generosity of the welfare state and the skill composition of migration.

Keywords: Fiscal externality, Generosity of the welfare state, skill composition of immigration

JEL Classification: F2, H1

Suggested Citation

Razin, Assaf and Sadka, Efraim, Migration State and Welfare State: Competition vs. Coordination in Economic Unions (October 2015). CEPR Discussion Paper No. DP10885. Available at SSRN: https://ssrn.com/abstract=2676591

Assaf Razin (Contact Author)

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)

London
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

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