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Differential Income Taxation and Tiebout Sorting

Author

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  • Takuya Obara

Abstract

This study examines optimal nonlinear income taxes when individuals differ in their preference for a public good and labor productivity. We consider two regions, of which one provides a higher-quality public service than the other, thus inducing individuals to "vote with their feet." The government implements a region-specific income tax schedule to reflect the difference in benefits from the public service between the regions in the tax system. We demonstrate that the optimal structure of the tax system is dramatically reformed, depending on whether individuals can move or not.

Suggested Citation

  • Takuya Obara, 2019. "Differential Income Taxation and Tiebout Sorting," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 75(1), pages 1-38.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2018-0020
    DOI: 10.1628/fa-2018-0020
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    Cited by:

    1. Takuya Obara & Shuichi Tsugawa & Shunsuke Managi, 2021. "$$\lambda $$ λ envy-free pricing for impure public good," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 11-25, April.

    More about this item

    Keywords

    extensive margin; optimal nonlinear income taxation; participation effect; tagging;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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