Optimal Non-Linear Income Tax when Highly Skilled Individuals Vote with their Feet
AbstractThis paper examines how allowing individuals to emigrate to pay lower taxes changes the optimal non-linear income tax scheme in a Mirrleesian economy. Type-dependent participation constraints are borrowed from contract theory. 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 social criteria are distinguished according to the agents whose welfare matters. Mobility significantly alters the closed-economy results qualitatively, but also quantitatively as veri.ed by simulations. A curse of the middle-skilled occurs in the first-best. In the second-best, the middle-skilled can support the highest average tax rates and the marginal tax rates can be negative. Moreover, preventing emigration of the highly-skilled is not necessarily optimal.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0656.
Date of creation: Oct 2006
Date of revision:
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Web page: http://www.econ.cam.ac.uk/index.htm
Optimal Taxation; Income Tax; Emigration; Participation Constraints;
Other versions of this item:
- Laurent Simula & Alain Trannoy, 2006. "Optimal Non-Linear Income Tax when Highly Skilled Individuals Vote with their Feet," IDEP Working Papers 0606, Institut d'economie publique (IDEP), Marseille, France, revised Sep 2006.
- Laurent Simula & Alain Trannoy, 2006. "Optimal Non-Linear Income Tax when Highly Skilled Individuals Vote with their Feet," IDEP Working Papers 0610, Institut d'economie publique (IDEP), Marseille, France, revised 18 Dec 2006.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-PBE-2007-03-10 (Public Economics)
- NEP-PUB-2007-03-10 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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