Differences in wages and redistribution as migration incentives

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Title: Differences in wages and redistribution as migration incentives
Author: Dolfus, Gero
Contributor: University of Helsinki, Faculty of Social Sciences, Department of Economics
Date: 2009-09-07
URI: http://hdl.handle.net/10138/16419
Thesis level: master's thesis
Abstract: In this thesis, I analyze how differences in redistributive tax schedules alone and together with wage differences arising from industry-specific shocks form migration incentives. I do so with the help of a theoretical model in which there are two countries that are identical except that in only one of them income is redistributed. The citizens of these two countries maximize their expected lifetime utility by investing in education and deciding on migration. Allowing for migration increases the investment in human capital by the citizens who initially live in the redistributive country and want to emigrate, while those who wish to emigrate from the country without redistribution may lower their educational effort. Moreover, migration influences the composition of the population of the redistributive country which, in turn, changes the size of the tax revenue and may reduce or increase the flat-rate benefit. Comparing the individuals' utility before and after migration is allowed reveals that integrating labor markets may result in a Pareto improvement.
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