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Optimal Income Taxation with Tax Competition

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  • Vilen Lipatov
  • Alfons Weichenrieder

Abstract

We introduce tax competition for mobile labor into an optimal-taxation model with two skill levels. We analyze a symmetric subgame-perfect Nash equilibrium of the game between two governments and two taxpayer populations. Tax competition reduces the distortion from the informational asymmetry and increases employment of the less productive individuals. When countries are heterogeneous, this effect is more pronounced in the smaller country.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-06/cesifo1_wp3108.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3108.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3108

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Keywords: optimal income tax; migration; unemployment; tax competition; Leviathan government;

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References

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  1. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers, Institute for Fiscal Studies W94/07, Institute for Fiscal Studies.
  2. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  3. Mirrlees, J. A., 1982. "Migration and optimal income taxes," Journal of Public Economics, Elsevier, Elsevier, vol. 18(3), pages 319-341, August.
  4. Hagen, K.P. & Osmundsen, P. & Schjelderup, G., 1995. "Internationally Mobile Firms and Tax Policy," Papers, Norwegian School of Economics and Business Administration- 8/95, Norwegian School of Economics and Business Administration-.
  5. Hans-Werner Sinn, 2002. "The New Systems Competition," NBER Working Papers 8747, National Bureau of Economic Research, Inc.
  6. Craig Brett & John Weymark, 2008. "Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility," Vanderbilt University Department of Economics Working Papers 0812, Vanderbilt University Department of Economics.
  7. Massimo Morelli & Huanxing Yang & Lixin Ye, 2012. "Competitive Nonlinear Taxation and Constitutional Choice," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 4(1), pages 142-75, February.
  8. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  9. Simula, Laurent & Trannoy, Alain, 2010. "Optimal income tax under the threat of migration by top-income earners," Journal of Public Economics, Elsevier, Elsevier, vol. 94(1-2), pages 163-173, February.
  10. PIASER, Gwenaël, 2003. "Labor mobility and income tax competition," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2003006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Alain Trannoy, Laurent Simula and, 2009. "Shall We Keep Highly Skilled at Home? The Optimal Income Tax Perspective," Working Paper Series, Center for Fiscal Studies, Uppsala University, Department of Economics 2009:9, Uppsala University, Department of Economics.
  12. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Munich Reprints in Economics, University of Munich, Department of Economics 19402, University of Munich, Department of Economics.
  13. Petter Osmundsen & Guttorm Schjelderup & Kåre Petter Hagen, 2000. "Personal income taxation under mobility, exogenous and endogenous welfare weights, and asymmetric information," Journal of Population Economics, Springer, Springer, vol. 13(4), pages 623-637.
  14. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Journal of Public Economics, Elsevier, Elsevier, vol. 71(3), pages 441-458, March.
  15. Wolfram F. Richter, 2002. "Delaying Integration of Immigrant Labor for the Purpose of Taxation," CESifo Working Paper Series 802, CESifo Group Munich.
  16. Osmundsen, P. & Hagen, K. P. & Schjelderup, G., 1998. "Internationally mobile firms and tax policy1," Journal of International Economics, Elsevier, Elsevier, vol. 45(1), pages 97-113, June.
  17. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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Cited by:
  1. Sebastian G. Kessing & Bernhard Koldert, 2012. "Cross-Border Shopping and the Atkinson-Stiglitz Theorem," Volkswirtschaftliche Diskussionsbeiträge, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht 158-12, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  2. Etienne Lehmann & Laurent Simula & alain trannoy, 2013. "Tax Me If You Can! Optimal Nonlinear Income Tax Between Competing Governments," Working Papers halshs-00870053, HAL.
  3. 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.
  4. Chen, Yu-Fu & Funke, Michael, 2010. "Global Warming And Extreme Events: Rethinking The Timing And Intensity Of Environmental Policy," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2010-48, Scottish Institute for Research in Economics (SIRE).
  5. Michael Funke & Yu-Fu Chen, 2010. "Global warming and extreme events: Rethinking the timing and intensity of environment policy," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 21007b, Hamburg University, Department of Economics.
  6. Laurent Simula, 2013. "Tax Competition and Migration," 2013 Meeting Papers, Society for Economic Dynamics 1126, Society for Economic Dynamics.

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