Marginal Costs of Income Redistribution at the State Level
William R. Johnson
Previous analyses of the cost of redistribution by a unitary government
have focussed on the welfare losses of distorted labor supply choices. On the
other hand, the analysis of redistribution b,y local qovernments in a federal
system has emphasized the effect of the migration of taxpayers and transfer
recipients in raising the cost (faced by state residents) of engaging in more
redistribution. This paper combines both migration and labor supply effects
to compute marginal redistribution costs at the state and federal level.
Surprisingly, for a wide range of parameter values, states face lower
redistribution costs than the national government because they are able to
"export" some of the cost through lower federal tax revenue. The normative
implication of the analysis is that any case for national redistribution
policies must be based on benefit spillovers across state lines rather than on
tax competition among state governments.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.