Migration and Redistribution: Why the Federal Governance of an Economic Union Matters

33 Pages Posted: 13 Jun 2016

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: June 2016

Abstract

Federal governance matters. Policy coordination allows the economic union to exercise monopsony power over migrants. Therefore the migration volumes under the policy-competition regime exceed those under the policy-coordination regime. With loose federal governance, competition over low-skilled migrants, who come with no capital, induces the individual member state to raise the provision of social benefit, so as to attract more migrants when starting from the coordination equilibrium. As a result, the social benefits in all other member States must also be raised to keep these migrants at their own economy. This amounts to excessively high income redistribution – a negative fiscal externality.

Suggested Citation

Razin, Assaf and Sadka, Efraim, Migration and Redistribution: Why the Federal Governance of an Economic Union Matters (June 2016). NBER Working Paper No. w22329. Available at SSRN: https://ssrn.com/abstract=2794775

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 )

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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
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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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