CSGR Working Paper No. 116/03
This paper examines the effect of immigration on the level of income redistribution via majority voting on the income tax. Immigrants have an impact on redistributive outcomes by adding to the size of different interest groups and by thus changing the composition of the voting population. The tax outcome depends on the skill composition of natives and the initial amount of redistribution in the economy, which in turn determines the skill composition of immigrants. As a main result, we derive conditions for multiple tax equilibria: if the skill composition of natives is not too homogeneous, both a high tax and a low tax outcome is possible if immigrants are allowed to vote. We find that natives will oppose immigrant voting if they are not homogeneous enough in their skills. In that case, immigrants votes could overthrow their majority and change the tax rate that is utility-maximising for natives. At best, natives are indifferent towards immigrant voting. As far as immigration itself is concerned, a native unskilled majority will gain from it and therefore vote for it, if immigrants are relatively more skilled than natives; a native skilled majority will be indifferent.
Keywords: Political Economy; Immigration; Income Redistribution
JEL Classifications: F22; H73; D72
Address for correspondence:
Department of Economics
University of Linz
A 4040 Linz