RELAXATION OF BARRIERS TO FACTOR MOBILITY AND INCOME-REDISTRIBUTION

Factor mobility is increasing over time due to reductions in transportation and communication costs. Political and other institutional barriers to factor mobility are also falling. Changes in factor markets change the market environment within which redistributive policies operate. In general, governments have a limited ability to redistribute among mobile factors. Redistribution may occur between mobile and immobile factors, and migration itself may generate fiscal benefits or costs that accrue to immobile factors. Attempts to redistribute income between mobile factors may ultimately affect primarily the income of immobile factors. Income redistribution with mobile factors also produces interjurisdictional fiscal externalities. This may make it desirable to shift more redistributive functions to higher-level governments. On the other hand, greater factor mobility may constrain rent-seeking, and greater centralization of redistributional powers may therefore be inappropriate. These issues arise both within existing federations such as the US and among the countries of the EC and of Europe more generally.