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Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria

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  • Jonathan Hamilton

    ()

  • Pierre Pestieau

    ()

Abstract

As recently argued by Diamond (1998), one of the key factors explaining the progressivity of an optimal non-linear income tax is the distribution of productivity among workers. Migration is one source of changes in the productivity distribution. How changes in the population’s ability distribution affect optimal income tax schedules has received little attention. Changing the distribution generally affects both the objective function and the government budget constraint. We first consider the comparative statics of the fraction of highly-skilled workers with maximin and maximax welfare functions (so that only the second effect is present) and a quasi-linear utility function. We also present some results for a utilitarian social welfare function. We then study the interaction between mobility and redistributive taxation. We consider mobility by either the skilled or unskilled population under majority voting where governments take the population as fixed. If individuals choose to relocate independently, having identical ability distributions is always a stable equilibrium when the unskilled are the mobile group. However, this is not always the case when the skilled are mobile. If groups of individuals can choose where to locate, having identical ability distributions across regions is only an equilibrium when the mobile type has an overall majority. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10797-005-6391-3
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 12 (2005)
Issue (Month): 1 (January)
Pages: 29-45

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Handle: RePEc:kap:itaxpf:v:12:y:2005:i:1:p:29-45

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: optimal income taxation; tax competition; migration;

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  1. Hindriks, J., 1999. "Mobility and Redistributive Politics," Discussion Papers 9915, Exeter University, Department of Economics.
  2. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  3. Flatters, Frank & Henderson, Vernon & Mieszkowski, Peter, 1974. "Public goods, efficiency, and regional fiscal equalization," Journal of Public Economics, Elsevier, vol. 3(2), pages 99-112, May.
  4. Brueckner, Jan K. & Zenou, Yves, 1999. "Harris-Todaro models with a land market," Regional Science and Urban Economics, Elsevier, vol. 29(3), pages 317-339, May.
  5. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September.
  6. CREMER, Helmuth & PESTIEAU, Pierre, . "Social insurance, majority voting and labor mobility," CORE Discussion Papers RP -1328, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. repec:ebl:ecbull:v:8:y:2002:i:2:p:1-6 is not listed on IDEAS
  8. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers 4, John Deutsch Institute for the Study of Economic Policy.
  9. Wilson, John Douglas, 1992. "Optimal Income Taxation and International Personal Mobility," American Economic Review, American Economic Association, vol. 82(2), pages 191-96, May.
  10. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August.
  11. Jan K. Brueckner, 1999. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  12. LEITE MONTEIRO , Manuel, 1994. "Redistributive Policy with Labour Mobility across Countries," CORE Discussion Papers 1994070, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1984. "Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice," Journal of Public Economics, Elsevier, vol. 24(3), pages 281-308, August.
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