Mobility and Redistributive Politics

There is a widespread concern that a greater mobility of individuals can undermine any attempt to redistribute income at the local level. In this paper we derive the equilibrium level of redistribution when both the rich and the poor are mobile (although in diierent degrees) and when each jurisdiction chooses its redistributive policy by majority voting. This leads to a fundamental interaction whereby the policy choices of jurisdictions determine who they attract, and who they attract determines their policy choices. Our main ndings are twofold. First, we show that a greater mobility of the poor can increase the equilibrium amount of redistribution. Second, some jurisdictions can be stuck in equilibrium on the \wrong" side of their Laaer curve. The reason is that the poor are in a majority in these jurisdictions and they oppose to a potentially Pareto improving tax reduction because it would attract the rich and shift the majority. for stimulating discussions and suggestions on earlier versions of this work. I have also beneeted from the comments of participants at seminars at the CORE, the University of East-Anglia, the University of Essex, and the University of Namur. Financial support from the European Commission under contract no. ERBFMBICT971968 is gratefully acknowledged. I retain responsability for errors and views.