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Income Redistribution in a Common Labor Market

David E. Wildasin
The American Economic Review
Vol. 81, No. 4 (Sep., 1991), pp. 757-774
Stable URL: http://www.jstor.org/stable/2006641
Page Count: 18
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Income Redistribution in a Common Labor Market
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Abstract

When households are mobile among jurisdictions, income redistribution by individual jurisdictions creates fiscal externalities. A model of interjurisdictional migration is used to study the nature of this redistributive externality. Analysis of optimal redistribution and optimal corrective subsidies from higher-level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions. A system of jurisdictions with a common labor market can achieve welfare improvements through coordination of "domestic" redistributive policy or through the intervention of a higher-level government.

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