Why do state governments’ redistributionary policies not result in a race to the bottom as commonly predicted by the fiscal federalism literature? A new study by Maximiliano Dvorkin, published in the Federal Reserve Bank of St. Louis Review, answers that question by creating a model with worker migration, nonlinear taxes, and a symmetric equilibrium. Dvorkin’s model shows why, in a federal system, redistributionary taxes and policies need not be pursued only by the national government, but can also be done by state governments. The study can be found here.
