Effects of a Tax-Transfer Scheme on Migration

Abstract

A general equilibrium elaboration of the classic model of inter-regional migration is used to examine the effects of a local tax-transfer scheme on migration. It is shown that a fair tax-transfer scheme, which does not distort the real wage comparisons of the migrants, does not affect migration. On the other hand, an unfair system is shown to encourage migration the more the smaller are the repayments as compared to the tax payments. In the longer term, when people adapt their perceptions concerning the repayments, the effects are dampened and eventually reduced to zero, provided that the scheme is actually fair.