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Devolving fiscal policy: migration and tax yields

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journal contribution
posted on 09.05.2019, 09:46 by James Foreman-Peck, Peng Zhou

Devolution of taxes to sub-national jurisdictions could reduce expected tax revenue if some households move to lower tax regimes, constraining devolved government policy. This paper develops an indirect approach to establishing lower bound revenue impacts of possible devolved tax changes by allowing for tax-induced migration. The results suggest that limited tax devolution, such as conferred on Wales by the UK 2014 Act, could trigger substantial tax revenue and gross value added (GVA) spillovers from migration on the devolved economy. The prospect may have, and perhaps should have, discouraged decentralization of taxation to the same extent as decentralization of spending in the Organisation for Economic Co-operation and Development (OECD).

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The authors also grateful for financial support from Peril Capital and the Ministry of Education, China [grant number 19YJA790089].

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