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Labor Migration and the Case for Flat Tax

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  • Tomer Blumkin
  • Efraim Sadka
  • Yotam Shem-Tov
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    Abstract

    In this paper we employ a tax-competition model to demonstrate that in the presence of migration the re-distributive advantage of a non-linear income tax system over a linear (flat) one is significantly mitigated relative to the autarky (no-migration) equilibrium. When migration threats are sufficiently strong, a coordinated shift from a non-linear (prima-facie superior) system to a flat (inferior) regime is not too welfare-costly, even when the extent of re-distribution is significant. Therefore, such a shift may be warranted on administrative grounds. We also show, as expected, that migration reduces the extent of redistribution.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-05/cesifo1_wp3471.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3471.

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    Date of creation: 2011
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    Handle: RePEc:ces:ceswps:_3471

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    Related research

    Keywords: flat tax; re-distribution; migration; tax-competition;

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    1. Hindriks, Jean, 1999. "The consequences of labour mobility for redistribution: tax vs. transfer competition," Journal of Public Economics, Elsevier, vol. 74(2), pages 215-234, November.
    2. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2007. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0720, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. PIASER, Gwenaël, 2003. "Labor mobility and income tax competition," CORE Discussion Papers 2003006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Alan Krause, 2009. "Education and Taxation Policies in the Presence of Countervailing Incentives," Economica, London School of Economics and Political Science, vol. 76(302), pages 387-399, 04.
    5. Massimo Morelli & Huanxing Yang & Lixin Ye, 2012. "Competitive Nonlinear Taxation and Constitutional Choice," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 142-75, February.
    6. Jonathan Hamilton & Pierre Pestieau, 2005. "Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria," International Tax and Public Finance, Springer, vol. 12(1), pages 29-45, January.
    7. Anna Ivanova & Michael Keen & Alexander Klemm, 2005. "The Russian 'flat tax' reform," Economic Policy, CEPR & CES & MSH, vol. 20(43), pages 397-444, 07.
    8. 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.
    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. Alain Trannoy, Laurent Simula and, 2009. "Optimal Income Tax under the Threat of Migration by Top-Income Earners," Working Paper Series, Center for Fiscal Studies 2009:8, Uppsala University, Department of Economics.
    12. 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.
    13. Petter Osmundsen, 1999. "Taxing Internationally Mobile Individuals—A Case of Countervailing Incentives," International Tax and Public Finance, Springer, vol. 6(2), pages 149-164, May.
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