Migration And The Welfare State: Political-Economy Perspective On Tax Competition
The paper revisit the issue of whether tax competition is a race to the bottom. I analyze tax competion among a continuum of competing host countries facing an upward†sloping supply of would be igrants. Capital move freely across the host country economies. I show how the fiscal burden of migration brings out a tax competition equilibrium whereby taxes on labor and capital income are higher than under a coordination equilibrium.I then introduce foreign direct investment and show how it counteract the forces for high taxation.