Migration Incentives and Taxation: Do Marginal Taxes Matter?
University of Aarhus Economics Working Paper No. 2004-7
12 Pages Posted: 27 Sep 2004
Date Written: March 8, 2004
Faced with ageing populations many European countries may be tempted to attract immigrants. One way to do this is to offer tax incentives. Since the decision to migrate is a discrete choice it should be average taxes that are important for the migration decision. If, however, the supply of working hours is endogenous it is shown that marginal taxes are also important for the migration decision, even after controlling for average taxes. Hence, countries interested in attracting immigrants can do so even without reducing average taxes by having less progressive tax systems than other countries.
Keywords: Migration, average taxes, marginal taxes, labor supply, population aging
JEL Classification: F22, H24
Suggested Citation: Suggested Citation