Migration With Changing Fiscal Transfers

Indirect Impact of Border Changes

With border changes come policy changes. Those policy changes will, in large part, be determined by certain fiscal realities. Governments can’t spend beyond their means forever.

Using data provided here, I’ve done some back of the envelope calculations on revenues and spending in each state. I’ll spare you the gory details and cut to the chase: South California, West California, and North California, by my calculations, could pretty much maintain their government services and tax levels as they are. Adjustments there would likely be fairly minor.

But in Jefferson, Central California, and Silicon Valley, segmentation would create massive policy questions. For example, I estimate that Jefferson’s government spending is probably about double what it could afford. That means the new State of Jefferson would have to either double its taxes, or slash its social services. Either result is likely to fuel out-migration. In other words, Jefferson’s high migration rate may not be sustainable. Who knows what Jefferson’s migration profile would look like in a post-adjustment world, but certainly the short run outlook is very negative. If Jefferson left California, Californians might just leave Jefferson. But the state had such high migration beforehand, that might not be catastrophic.

Central California meanwhile has an even more severe fiscal imbalance, and less positive migration flows. The jarring fiscal adjustments that would be necessary to balance out Central California’s public finances would almost certainly be accompanied by outflows, and the long-run outlook for the region (especially if water rights became more challenging to acquire) would almost assuredly be negative. Segmentation might mean partial depopulation of Central California.

Silicon Valley, on the other hand, could almost double its government spending, or massively slash its taxes. These policy changes would probably have little direct impact on the main source of migration strength for the state, international migration. But the newfound largesse of the state, or its status as a tax haven surrounded by higher-tax Californias, would almost certainly be substantial enough to slow the tide of out-migration to other parts of California.

When networks of fiscal support are broken up and migration is free, the old subsidy balance has to right itself through changes in fiscal policy, and those changes will induce migration. This isn’t the usual taxes-and-migration argument, by the way. My argument here isn’t that low taxes or big school spending create migration in the long run: it’s that massive, uncompensated shocks create migration. Silicon Valley taxpayers get a huge free lunch when unburdened of Central California, while Jeffersonians get shackled with new fiscal chains. Tax and spending changes in this case occur without offsets, because the former offsets occurred in different, now-unconnected regions. Such massive shocks almost certainly impact migration decisions. If changes in political climate, cultural norms, and regulatory systems come at the same time, then it’s hard to imagine not having big, lopsided migration flows.