Sinikka Hämäläinen, Ph.D., Department of Economics and Accounting, University of Tampere, Kanslerinrinne 1 A, Tampere, 33014, Finland
The paper provides some insights into the return behaviour of migrant workers. In particular, we investigate the effects of migration on optimal tax rules when individuals have entrenched habits. Habit formation making people to resist changes lowers the elasticity of return migration. So, the habit factor seems to be a good reason to reduce responsiveness of migration to changes in tax rates. The main consequence of this conclusion is that a habit factor makes a tax policy less effective as a migration policy. To perform a migration policy, governments have to look at some alternative policy tools.