Devolving fiscal policy: migration and tax yields

an article by James Foreman-Peck anbd Peng Zhou (Cardiff University, UK) published in Regional Studies Volume 54 Issue 3 (2020)

Abstract

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 decentralisation of taxation to the same extent as decentralisation of spending in the Organisation for Economic Co-operation and Development (OECD).

JEL Classification: J61, H11, H22, R23

Labels:
migration, fiscal_decentralisation, tax_revenue,

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