Voluntary income redistribution with migration

JOURNAL OF URBAN ECONOMICS 31, 84-98 (1992)

Voluntary Income Redistribution with Migration*

RANDALL CRANE”

Centro de Estudios Econdmicos, El Colegio de M&co, M&co, D. F., and University of California, him, California 92717

Received November 16, 1989; revised May 8, 1990

This paper examines theoretically the “welfare magnet” problem brought about by income redistribution in a small area, where disparities across jurisdictions in transfer policies may induce both recipient and resource migration. We show that the level of redistribution determined by majority rule may either rise or decline as household mobility increases, and that this level will be either higher or lower than the efficient level to an extent that depends on local market conditions, the social value of migrants, and the mobility of both the rich and the poor. In particular, an economy may benefit from the immigration of transfer recipients. We also derive the form of an efficient community-specific subsidy to transfers, which in some cases will be negative. 0 1992 Academic Press, Inc.

1. INTRODUCTION

Policymakers at the state and local level have expressed concern over the so-called welfare magnet problem, in which disparities across states in transfer policies are believed to encourage recipient and possibly resource migration, The argument is that any particular transfer policy should account for migration effects, which are understood to have bearing not only on the net cost of the policy but also on the resources available.’ The controversy is over whether the presence of migratory responses to transfer programs in turn implies that such transfers are too high. This study clarifies the terms of the debate by showing how the value of redistributing local resources depends not only on the value of income to each group, but also on the cost of the transfer in erosion of the resource base through migration and through the general equilibrium effects of such activity on local prices.

*Based in part on talks given at El Colegio de Mexico and MIT. I am grateful to Adalberto Garcia Rocha, Andrew Reschovsky, Jerome Rothenberg, and William Wheaton for helpful conversations, to John Heywood, Edwin Mills, and an anonymous referee for comments on earlier versions.

‘Present address: Program in Social Ecology, University of California, Irvine, CA 92717. ‘For empirical studies of the spatial responsiveness of welfare recipients to differences in

welfare benefits between states see Blank [6] and Gramlich and Laren [19].

84 0094-1190/92 $3.00 Copyright 0 1992 hy Academic Pre%, Inc. All rights of reproduction in any form reserved.

VOLUNTARY INCOME REDISTRIBUTION 85

The story focuses on two groups of questions. The first concerns the effect of household mobility, and the associated self-selection constraints, on the inclination of voters to redistribute income. The contribution mechanism is modeled as a system of public redistribution determined by majority rule, but the analysis would apply just as well to a system of private charity where all resident donors behaved identically. The setting considered is one where a group of households, the rich, is altruistically motivated to transfer income to another group, the poor.2 The analysis sheds light on the familiar yet little studied case where residents of an area care about the standard of living of the near-at-hand poor, but also worry about both the cost of the transfer and its effects on prices and population movements. Second, we investigate the optimality of the majority rule level of redistribution, the extent to which public spending crowds out private donations, and the structure of the optimal public subsidy to voluntary transfers in an open economy setting.”

Our results demonstrate that the optimal level of transfers in an open economy may be either more or less generous than in the absence of migration, depending upon the indirect effects of income transfers on prices and the relative propensity of rich and poor to migrate. They also show that the level of redistribution obtained by majority rule (or the private market for that matter) is unlikely to be optimal. When voters value the income of the poor as well as their own income, the decentral- ized nature of the voter’s calculus makes it difficult to internalize all the benefits of the transfer. While this result in itself is not surprising, the form and character of an efficient subsidy/tax scheme, the possibility that migration may promote redistribution, and the possibility that the level of redistribution may be excessive, all contribute to a somewhat broader perspective on the question of redistributional policy at the state and local level.

We also derive the form of the optimal subsidy to private charitable giving and demonstrate its sensitivity to the migratory responsiveness of both the rich and poor to income transfers, as well as to local market conditions. The importance of local activity to this policy rule supports the argument that if local authorities have better information about resident behavior than authorities at higher levels, at least some of the burden for ensuring a fair distribution of income is properly a local rather than national responsibility.

‘Models of interdependent preferences have been explored by Hochman and Rodgers [20] as a way of dispensing with welfare functions, by Boskin and Sheshinski [S], and Oswald [30] as an explanation for apparently inefficiently steeped income tax schedules, and by Pauly [32] as a rationale for a municipal role in income redistribution.

‘The crowding-out hypothesis has been discussed most recently by Warr [36, 371, Bernheim [4], Bergstrom er al. 131, Roberts [33-351, Cornes and Sandier [ll, 121, and Andreoni [l].

86 RANDALL CRANE

Section 2 proceeds by first specifying a model without migration where altruism is based on observable consumption. Section 3 then allows for self-selection by all households and contrasts the level of transfers chosen by majority rule with the efficient level, where the elasticities of mobility of the rich and the poor and public information. The crowding-out hypothesis and tax policy toward voluntary transfers are also examined. Section 4 summarizes these results and discusses their implications.

2. REDISTRIBUTION AMONG A FIXED POPULATION

To set out the main principles clearly, we first examine the benchmark case of a two-good closed economy with two income classes where the rich value the consumption of transfer recipients, the poor. The rich have preferences over a composite consumption good .xr, the “luxury” good, and the level of income of recipients, while recipients value only their consumption of xp, the “necessity” good. Net-of-transfer incomes are exogenous.

The Majority Rule Outcome

Imagine first that the rich outnumber the poor, so that the decisive voter is rich. Such a voter will always provide suboptimal income levels, even when fully accounting for the migratory impacts of her contribution, as she does not explicitly account for the direct social net benefit of the transfer to recipients. Consider the choice of the transfer B per poor person to maximize I/ ‘( p ‘, -T, B) by a rich voter who sees the public budget constraint TN r = BN p, where T is the per capita transfer from each rich household, the superscripts r and p denote a rich or a poor household,4 respectively, V’ is the indirect utility of household type i, N’ is the number of type i households, pi is the price of consumption good i,5 and exogenous incomes are suppressed in the notation. The solution to this problem is the marginal condition

dV ‘/aB ,ap’ NP A’ =xJpN’ (1)

applying Roy’s identity, where A’ is the marginal utility of income of household type i (assuming transfers do not exceed exogenous wealth). The direct altruistic benefits of the transfer to the voter must be just offset at the margin by the induced change in consumption expenses and the

4The eligibility criteria for being categorized poor, and thus a nonaltruistic recipient, are left unspecified.

‘The two local goods could be expanded to vectors of commodities without affecting the results.


dollar cost of a one dollar increase in the benefits level. The latter depends on the relative number of individuals in each group.

The price change is obtained by solving for the changes in pr consistent with the market equilibrium condition that supply equal demand: S’(p’) = N’x’(p’, -T, B), where S’(p’) is the aggregate supply of good i.” Differentiating with respect to B and solving for the equilibrium price change gives

dP’ -PT aB = B( &I - &:) < *

if excess supply of X’ increases with its price, where qr is the income elasticity of demand for x’ by the rich, &: and &: are the price elasticities of supply and demand for good r, respectively, and we have let dx’/aB = 0 for convenience. As incomes fall due to the transfer, aggregate demand falls and with it the price of x’. Hence the local world becomes in part a cheaper place to live for the rich as they become more generous with respect to transfer policy. Again, this must be balanced against the income cost of the transfer. The transfer level chosen, however, is unlikely to be the efficient one, as seen in the next section.

The Optimal Transfer

The externality is evident when contrasting the level of redistribution given by the social rule with that chosen by the median voter. The Utilitarian (or Pareto) problem can be written as the choice of B to’

max W = N’V’( p’, -T, B) + NPVP( pp, B)

s.t. N’T = NPB. (3)

The solution to (3) for fixed N’ and NP is given by the modified Samuelson condition

dVr NPAP + N’e..m = A’

aB + NPhPxPw

aB . (4)

Each term on the left-hand side of (4) is the marginal direct benefit of the

6The cross-price elasticities are assumed to be zero. 7This choice of a social aggregation function is somewhat arbitrary, and is meant only to

capture the potential social value of migrants and the existence of the externality discussed below. Moreover, while each group has an equal social weight, the welfare function interpretation of (3) gives the income of the poor more social weight than the income of the rich, implying that the rich should have less income at the optimum. We ignore this implication to focus on the issues of interest.

88 RANDALL CRANE

transfer to a household in each group. The right-hand side represents the marginal cost of the transfer, which includes a cost to both rich and poor if the prices of the goods they consume rise. Social net benefits are zero where each household has zero net benefits, or where one group’s weighted gains offset the other’s weighted losses.

In (41, as in (11, the rich value increases in B directly, as Wr/aB > 0, at a cost that depends on the size of the donation, which in turn depends on the relative number of households in each category and the general equilibrium effect on other expenditures. Recipients gain by a dollar for each dollar given, but pay more for consumption since the equilibrium condition Sp(pP> = NP~P(~P, B) implies that

JPP PPVP -= dB B(E;-cE,P) >”

As more poor move to the local economy in response to more generous transfers, the price of the good they consume will rise.

In comparing the social rule (4) and the private rule (11, both the benefits and costs of the gift to the poor are ignored in (11, by assumption, implying that the level of transfers preferred by the rich majority too low or too high as the change in the cost of consumption is less than or greater than a dollar, for each dollar received.

Crowding Out

Note that public transfers do have a neutral effect on the total level of redistribution. The standard Ricardian equivalence result, of perfect crowding out of private spending by public spending, is obtained in this model as individuals do not value their own contribution per se. The nonlinearity of each household’s budget in (x, T) space has no effect on the neutrality of public expenditure, ’ but redistribution financed by lump sum taxation reduces the level of funds available for private charitable giving without increasing the total level of redistribution.’ Imagine that the total per person contribution to the poor was T + C, rather than T, where C is the per person contribution to private charity and T is the lump-sum tax imposed to finance redistribution. As the government, through the majority rule mechanism perhaps, adjusts T upward or downward, the individual moves private giving C in tandem to maintain

“So long as the nonlinearity of the budget set does not result in multiple tangencies. ‘See Cornes and Sandler [ll] and Andreoni [l] for closed economy models where crowding

out is imperfect.


(1); i.e., all that matters to the individual are the dollars going toward support of B.

3. AN OPEN ECONOMY MODEL

These conclusions must be modified when residents are free to move in and out of the economy. Even though they care about the poor, the conventional argument is that the rich voter would choose to decrease her preferred level of transfers when faced with the induced immigration of more eligible recipients. We show that this argument is not general. The question is addressed by characterizing the behavior of each group in terms of its decisions of how much to transfer or receive as well as its decisions of whether to move. We find that the informational require- ments of an optimal transfer scheme increase in general, as expected, and that the behavior of a rich voter in particular is difficult to predict. The externality and crowding-out arguments presented in Section 2 carry over more or less intact, but depending on the general equilibrium effect on local prices, and the social value of migrants (rich and poor), the transfer level that is consistent with majority rule may rise as the economy becomes more open, possibly beyond the efficient level.

As part of our assumption about mobility, we introduce another source of heterogeneity among agents by allowing them to move differentially within each class.‘” An increase in the level of redistribution toward the poor, for example, encourages some but not all eligible poor to immigrate, and some but not all of the rich to emigrate.” The problem can then be expressed as a tradeoff to the rich between a loss of members, the consumption benefits of redistribution, and the direct and indirect costs of such giving. If the decisive voter is a recipient (i.e., NP > N’), he faces a tradeoff between the higher income associated with higher transfer levels versus a loss in the number of rich versus an increase in the number of recipients. A poor decisive voter might attempt to maximize his welfare without explicitly recognizing a resource constraint-with obvious conse- quences. At the other extreme, he may seek to maximize his own welfare subject to the restriction that no rich household felt obligated to leave. Since this is equivalent to conditioning the choice of the transfer on some

“This is one way of approaching the heterogeneity issue, although differential mobility is an abuse of the notation. Implicitly, we are assuming there exists an income continuum of potential rich and poor within each group, were each individual household moves or stays subject to self-selection constraints of the form Vp(p, yp + B) 2 VP and V’(p, y’ - T, B) 2 ar for poor and rich, respectively, where y is exogenous income, and VI is the level of utility available elsewhere for y’ type households. For related approaches with explicitly heterogeneous groups see Mirrlees 1271 and Crane [14].

“We continue to assume that the decisive voter is rich, because it is the more interesting case, but the group in the majority may well change identity as the process continues.

90 RANDALL CRANE

reservation utility level for each rich resident, an efficient allocation is obtained. Alternatively, if the mobility elasticities were known, voters in either group could calculate an interior solution for redistribution.12

We would still be left with the difficulty posed by the consumption externality dimension of the problem, however. The analysis presented here isolates the inefficiency in the class of models where preferences are unilaterally interdependent, all households are fully mobile, and prices are flexible.

Majority Rule

Consider the choice by the decisive rich voter of B, with rational expectations over prices and migratory behavior, to

max V’( pr, - T, B)

s.t. N’T = NPB. (6)

Her indifference curve is tangent to the feasibility constraint where

dV/’ W’ dB= c?B - - A’ dNp - $dNr)$ + g + d$ = 0. (7)

[( 1 The first term on the right-hand side of (7) is the value to the voter of increases in the income of recipients, and the bracketed term is the cost of the transfer, including induced migration and consumption effects due to the general equilibrium effect on the price of the nontraded luxury good. The nature of the tradeoffs may be seen somewhat more clearly by rewriting (7), such that the marginal value to a rich voter of an increase in the level of the transfer is

aVr/aB A’

=xrg + $(l + /.Lp - /J),

where PI’ = d log N’/d log B is the elasticity of mobility of group i with respect to the transfer, and pr < 0 < pp by assumption.13

12The approach resembles that of Courant et al. [13], who examine the opportunities a recipient group has for taking advantage of a similar interdependency. They characterize the problem as one where a public union supplies a public good, measured as the level of public employment, so that private citizens benefit directly from a larger public payroll. The measure of the union’s market power depends on the spatial responsiveness of taxpayers generally to the tradeoff between higher taxes and more of the public good.

13The mobility elasticities may be interpreted more generally as also capturing movement in and out of rich or poor status, perhaps due to induced labor market behavior. This is the distortion of interest in Birch [5], for example.


Equation (8) decomposes the costs of redistribution to the rich voter into those associated with each population group.14 Costs are higher for each dollar given for two reasons: new recipients immigrate (each dollar is spread more thinly), and some of the rich emigrate. Each requires a large transfer to obtain the same utility effect by increasing the resources necessary and decreasing the resources available. An increase in the number of rich magnifies the effect of rising prices and reduces the welfare of the group directly by a loss of members.15 Moreover, comparing (8) with (1) we see that redistribution in an open economy is perceived by the rich as a more expensive proposition than in a closed economy for exactly the reasons just listed, unless prices do not rise in the open economy by enough to offset the changes in the size of the rich and poor groups.‘” Hence, abstracting from general equilibrium price effects, the decisive voter in an open economy reduces the level of transfers the more mobile are individuals in each group.

However, the net result also depends on local market conditions-i.e., on local price movements. Imagine that the loss in community income due to rich emigration is such that the price for the local luxury good falls (e..g, “premium” house prices fall). Ignoring wealth effects, those rich remaining in the area may be sufficiently taken by the lowered consumption costs to contribute more than in the absence of migration. In this case it is the supplier of Xr, absent from our model, who is in part subsidizing the transfer. The range of possibilities can be seen somewhat more concretely by solving for the change in p’ consistent with market equilibrium. For the luxury good, consumed only by the rich, we have from market equilibrium for good r and from (2)

w pqpy~ + +) - 77v + 1.41 w aB= B( &,r - E:) < 37 p’=O

< o (9)

if excess supply of X’ increases with its price. In the absence of cross- demand effects, aggregate demand falls for X’ as some rich emigrate by more than in the absence of migration. As the poor immigrate, a higher

14For simplicity, we ignore the interjurisdictional externality resulting from the migration of rich and poor to and from other communities. See Brown and Oates [lo] for a two-jurisdic- tion model of redistribution that addresses this externality.

“The net effect would naturally also be conditional on how households react to distortionary taxes in the absence of lump-sum finance. See, for example, Boadway et al. 171, Birch 151, and Roberts [34, 351.

16Generally speaking, it is problematic to draw conclusions about magnitudes from the first-order conditions of two separate problems: The marginal utilities of income in each case may be quite different. At the cost of losing some generality, we assume this is not a problem.

92 RANDALL CRANE

tax is required from each remaining rich resident. The price thus falls more the more elastic the migratory response of each group.17

While the consumption cost advantages to the rich of increasing transfers may seem somewhat abstract or negligible in practice, there are plausible situations where this effect could be, and indeed likely has been, significant. If the housing market were sufficiently segmented, for example, and the rich were tenants, then an outflow of rich would lower local rents to those rich remaining. The argument applies equally to other local nontraded goods, such as land, where the decisive voter may be capable of accounting not only for the increased cost of more generous transfers to the poor, but also for the indirect effects of rich migration on local prices. Whether this savings would offset the transfer cost is an empirical question, and one specific to local conditions.‘*

Substituting from (9) into (8) gives a reduced form decision rule for a rich voter with rational expectations regarding the local market mechanism and migratory behavior:

A rational rich voter increases redistribution until the lower consumption costs brought about by emigration of the rich are just offset by the higher resource cost of the transfer to the poor. Because 1 - $/C&i - E:) > 0,” the mobility of the poor affects the right-hand side of (10) positively. That is, poor immigration increases the net cost of redistribution from the perspective of a rich voter (who ignores the direct benefits and the change in consumption costs to the poor). The mobility of the rich, on the other hand, affects the cost of redistribution ambiguously since the sign of the coefficient on pLr may be positive or negative, although it is more likely to be positive the more elastic is compensated demand and the more inelastic is the supply of good r. After accounting for both the incidence of redistribution on the local price and the impacts of migratory behavior, the level of redistribution chosen by the decisive voter may therefore be either higher or lower than in the closed economy.

“In an earlier version of this paper we showed that if the rich and poor consume the same good, the price of that good may either rise or fall with an increase in the transfer level depending on the size of each group and the relative magnitudes of their demand and mobility elasticities.

“A method of incorporating the endogeneity of population and prices, along with tax distortions, when estimating the demand for public goods generally is developed in Crane

[151. “Since EJ - E: - 71r = E: - (p’/x’X~?h’/ap’) > 0, using the Slut&y equation, where h’

is the compensated demand for good r.

VOLUNTARY INCOME REDISTRIBUTION

The Optimal Transfer

Still, even if the decisive rich voter has full knowledge of (p’, CL*, ap’/aB), she may under or over redistribute income in solving (6) rather than (3), as she ignores both the net value of the transfer to recipients and the social value of recipient migration. Solving the social problem (3) but now allowing for variable N’ and N*, the marginal condition for an alloca- tively efficient transfer level is that each rich voter should value transfers according to

avr/as rapr N* A’

=xz+N’

where up = APB/VP and ur = h’T/V’ are the income elasticities of utility for the poor and the rich, respectively, and market equilibrium for good p and (5) imply that

ap* P*P*+~ ap* >. -=- aB B E* - F* s x QJ- $=O .

That is, the price of the basic commodity consumed by the poor rises by more in the open that it would rise in the closed economy, given the increase in the number of poor consumers.

Condition (11) is a complex social rule, depending as it does on unobservable as well as observable behavioral parameters. Among other things, the net direct benefits of the transfer to the poor (1 - xp ap*/aB) and the social value of poor immigrants (via up> enter negatively, while the social value of rich emigration (via u’) enters positively. One useful way to proceed is to focus on the local subsidy policy toward private charity, or the federal subsidy policy toward local public redistributive activity, im- plied by (ll), which is suggested by the differences between (8) and (11). The advisability of a subsidy to charitable giving to correct for consumption externalities has been discussed by Hochman and Rodgers [21] and Warr [36], among others. Roberts [34, 351 has argued that tax credits for charitable giving dominate income taxation as a means of financing redistribution even in the absence of a consumption externality.*’ Put simply, a subsidy rate t costs the public treasury tT per donor, where T is the level of charitable giving. A tax to publicly finance the same level of redistribution would raise T dollars in taxes per donor. So long as t is less than one,

*‘Also see Feldstein [16].

94 RANDALL CRANE

fewer taxes need to be raised under the subsidy scheme and, if the tax was distortionary, a smaller distortion would result as well.

Assuming that all the rich would choose to donate voluntarily, and that donors would otherwise behave according to (8), decentalizing the level of transfers given by (11) would require that a per-household Pigouvian subsidy t* be imposed per dollar of voluntary donations, where

--- reflects the (donor) value of immigrating recipients, of migrating rich,*l and of the transfer to recipients. The recipient benefit includes a measure of the costs imposed by changing prices. If other taxes must rise to finance this subsidy, for example, or if charitable giving is extensive enough to place noticeable upwards or downward pressure on prices due either to income effects or group migration, the effect on the recipient’s cost of living should be accounted for.

The subsidy is higher the more sensitive is rich migration to the transfer level, and the smaller the number of poor relative to rich. The sign on the coefficient on pp in (12) is positive if up is sufficiently small, but it could be negative if the social value of the poor is high-suggesting that increased mobility of the poor will either lower or increase the subsidy. The overall subsidy rate is positive or negative as the term in curly brackets in (12) is negative or positive, respectively. This term is more likely to be positive, suggesting that transfers be subsidized, the smaller are p* and np in absolute value, the larger is ur, and, if E,” - E,” - up > 0, the larger is pp and the smaller is up.

Crowding Out

The crowding-out argument in the closed economy case applies here as well. If the decisive voter is also a contributor to private charity, she determines her contribution according to (lo)-the same rule determining her transfer level. Any additional transfer mandated by the government is therefore exactly offset by a decrease in private charitable giving.

“Consideration of the utility of migrants is necessary in this discussion, but also somewhat problematic. Perhaps the rich are willing as a group to favor transfers even if members of the group decide to leave as a consequence. They may also place some value on the utility of migrants of the other groups, although immigration places demands on the resources available for transfers to current residents. Different principles for comparing two outcomes with different populations are discussed in Broome [9] and Parfit [31].


However, note that if each group is initially equally sized, migrants do not count in local social welfare (so that ui = 0 in (12) for i = r, p), and the marginal utility of income is the same for each household, then the optimal subsidy becomes

8PP

The rate is a dollar-for-dollar subsidy of charitable giving except to the extent that prices change. 22 If each household values a dollar the same, there is no social gain from transfers except for the direct consumption benefit and cost of the act of giving. And if prices rise sufficiently, the optimal policy is a positive tax on charitable giving. Were the poor to receive a dollar in charity and as a consequence their house rent increased by two dollars, less charity would be in order. This example may be farfetched, but it does underscore the need to evaluate the indirect as well as direct impacts of transfers, be they private or public.

While the level of redistribution chosen by the majority is inadequate in this case, even in the absence of the interjurisdictional externalities, so would be a uniform system of redistribution across jurisdictions. Local differences in the responsiveness of each group, and the general availabil- ity of this information, suggest the importance of at least some local discretion as a component of redistributive program design.23

4. CONCLUSION

The concern that has been expressed over the so-called welfare magnet problem is at least in part simply the argument that any particular transfer policy should account for migration effects, which are understood to have bearing not only on the net cost of the policy but also on the resources available. Perhaps the most striking result from this paper is the theoreti- cal difficulty involved in signing these impacts. On the one hand there is the crowding-out hypothesis, which suggests that public transfers at least in part displace private transfers. To the extent such crowding out is complete, as in our model, it is unclear how more or less generosity on the part of the local public sector has any net migratory impacts. That is, a reduction in the public benefits level B would result in an exactly offset- ting increase in private giving. Under those circumstances where crowding out is incomplete-such as where the eligibility criteria for public and private aid differ-each additional dollar of public giving may well have

**Hence, if all prices are tied then the subsidy scheme has no advantage over a tax-financed scheme of public redistribution.

23This was one of Pauly’s [32] main points in a model where only recipients were mobile.

96 RANDALL CRANE

migration effects above and beyond those induced by private charity, but since both costs and benefits are affected the net effect is an empirical issue.

In particular, this paper argues that the less (more) mobile are the rich and poor populations, the higher (lower) are the net benefits of redistribution only if local general equilibrium price effects do not dominate the benefits of the new income allocation. The conventional wisdom that even if the majority of the rich in an area care about the poor, it may well be second best to support little redistribution from local resources if both groups are very mobile, does not hold generally. Rather, it depends critically on the assumption that transfers do not affect the consumption costs of either group. On the other hand, if the rich population base is relatively inelastic, as is often the case in the large cities of developing countries, the economic cost of redistribution is lower, and local redistributive activity is appropriate even though these transfers induce more poor immigration. Moreover, the efficient public subsidy to private giving may in fact be a tax if the general equilibrium price (or local tax) effect dominates the benefits of the income transfer, bringing about the unlikely event that income transfers actually make recipients worse off. The real point is that the rich may neglect to consider not only the full consumption benefits of the transfer to the poor, but also recipient costs.

While we have spoken exclusively in terms of money transfers, these results are clearly relevant to the analysis of any private or public activity with distributional impacts. Other than those studies concerned with the migratory impacts of welfare policy, no research on the incidence of public expenditure has incorporated both the migration and private contribution margins into the analysis. 24 Whether the direct incidence of public spending is found to be pro-rich, as in Gramlich and Rubinfeld [lSl, or pro-poor, as in Martinez-Vazquez [26], it is unclear what to make of the numbers unless one also examines, on a case-by-case basis, the migration impacts of those policies.

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Voluntary income redistribution with migration

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