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Shall we keep the highly skilled at home? The optimal income tax perspective

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  • Laurent Simula

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  • Alain Trannoy

    ()

Abstract

We examine how allowing individuals to emigrate to pay lower taxes abroad changes the optimal non-linear income tax scheme in a Mirrleesian economy. An individual emigrates if his domestic utility is less than his utility abroad net of migration costs, utilities and costs both depending on productivity. Three average social criteria are distinguished—national, citizen and resident—according to the agents whose welfare matters. A curse of the middle-skilled occurs in the first-best, and it may be optimal to let some highly skilled leave the country under the resident criterion. In the second-best, under the Citizen and Resident criteria, preventing emigration of the highly skilled is not necessarily optimal because the interaction between the incentive-compatibility and participations constraints may cause countervailing incentives. In important cases, a Rawlsian policymaker should decrease top marginal tax rates to keep everyone at home. Copyright Springer-Verlag 2012

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Bibliographic Info

Article provided by Springer in its journal Social Choice and Welfare.

Volume (Year): 39 (2012)
Issue (Month): 4 (October)
Pages: 751-782

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Handle: RePEc:spr:sochwe:v:39:y:2012:i:4:p:751-782

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Cited by:
  1. Felix Bierbrauer & Craig Brett & John A. Weymark, 2011. "Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility," CESifo Working Paper Series 3329, CESifo Group Munich.
  2. Laurent Simula, 2013. "Tax Competition and Migration," 2013 Meeting Papers 1126, Society for Economic Dynamics.
  3. Etienne Lehmann & Laurent Simula & Alain Trannoy, 2014. "Tax Me if You Can! Optimal Nonlinear Income Tax between Competing Governments," AMSE Working Papers 1415, Aix-Marseille School of Economics, Marseille, France, revised 14 May 2014.
  4. Andrea ARIU & Pasquamaria SQUICCIARINI, 2013. "The Balance of Brains: Corruption and High Skilled Migration," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2013010, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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