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Title:Artificial time inconsistency as a remedy for the race to the bottom PDF Logo
Authors:Weichenrieder, Alfons J.
Busch, Oliver
Issue Date:2005
Series/Report no.:CESifo working papers 1637
Abstract:A long-standing concern in the literature has been that household mobility implies a serious threat to the viability of redistributive taxation. This paper considers the effects of deferred integration of migrants into the redistributive system of the target country. In a model of symmetric regions, deferred integration introduces a time consistency problem into governments' tax plans which reduces a region's incentive to undercut other regions' tax rates and can bring tax competition to a halt. On the one hand, rich migrants cease to benefit from the lower tax rate in the current period. On the other hand, the region's promise of a continuing low rate in the future is not credible. We also explore the case where poor recipients of social assistance are mobile while the rich are immobile.
Subjects:tax competition
federalism
mobility
social assistance
time consistency
JEL:H25
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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