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Optimal income taxation and the ability distribution: implications for migration equilibria

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Author Info
HAMILTON, Jonathan
PESTIEAU, Pierre

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Abstract

As recently argued by Diamond [1998], one of the key factors explaining the progressivity of an optimal non-linear income tax is the distribution of productivity among workers. Migration is one source of changes in the productivity distribution. How changes in the population's ability distribution affect optimal income tax schedules has received little attention. Changing the distribution generally changes both the objective function and the government budget constraint. We first consider the comparative statics of the fraction of highly-skilled workers with a Rawlsian welfare function (so that only the second effect is present) and a quasi-linear utility function. We perform the same analysis for a despotic social welfare function, and present some results for a utilitarian social welfare function. We study the interaction between mobility and redistributive taxation. We consider mobility by either the skilled or unskilled population in both Rawlsian and majority voting frameworks where governments take the population as fixed. Our main result is that equal ability distributions across jurisdictions is a stable equilibrium when the unskilled are mobile, but only under certain conditions when the skilled are mobile.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002036.

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Date of creation: 01 Jun 2002
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Handle: RePEc:cor:louvco:2002036

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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.:
  1. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August. [Downloadable!] (restricted)
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  2. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1984. "Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice," Journal of Public Economics, Elsevier, vol. 24(3), pages 281-308, August. [Downloadable!] (restricted)
  3. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November. [Downloadable!] (restricted)
  4. Jan K. Brueckner, 2000. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  5. Leite-Monteiro, Manuel, 1997. "Redistributive policy with labour mobility across countries," Journal of Public Economics, Elsevier, vol. 65(2), pages 229-244, August. [Downloadable!] (restricted)
  6. Brueckner, Jan K. & Zenou, Yves, 1999. "Harris-Todaro models with a land market," Regional Science and Urban Economics, Elsevier, vol. 29(3), pages 317-339, May. [Downloadable!] (restricted)
  7. Wilson, John Douglas, 1992. "Optimal Income Taxation and International Personal Mobility," American Economic Review, American Economic Association, vol. 82(2), pages 191-96, May. [Downloadable!] (restricted)
  8. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March. [Downloadable!] (restricted)
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  9. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September. [Downloadable!] (restricted)
  10. Hindriks, Jean, 2001. " Mobility and Redistributive Politics," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(1), pages 95-120. [Downloadable!] (restricted)
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  1. Craig Brett & John A. Weymark, 2004. "Public Good Provision and the Comparative Statics of Optimal Nonlinear Income Taxation," Working Papers 0415, Department of Economics, Vanderbilt University. [Downloadable!]
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  2. Brett, Craig, 2008. "The effects of population aging on optimal redistributive taxes in an overlapping generations model," MPRA Paper 8585, University Library of Munich, Germany. [Downloadable!]
  3. Jon Hamilton & Jean-Marie Lozachmeur & Pierre Pestieau, 2002. "Rawlsian governments and the race to the bottom," Economics Bulletin, Economics Bulletin, vol. 8(2), pages 1-6. [Downloadable!]
  4. Robin Boadway & Pierre Pestieau, 2006. "Tagging and Redistributive Taxation," Working Papers 1071, Queen's University, Department of Economics. [Downloadable!]
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  5. Craig Brett & John A. Weymark, 2005. "Optimal Nonlinear Taxation of Income and Savings in a Two Class Economy," Working Papers 0525, Department of Economics, Vanderbilt University. [Downloadable!]
  6. Gwenael Piaser, 2003. "Labor Mobility and Income Tax Competition," Public Economics 0302002, EconWPA. [Downloadable!]
  7. Laurent Simula, 2007. "Optimality conditions and comparative static properties of non-linear income taxes revisited," PSE Working Papers 2007-15, PSE (Ecole normale supérieure). [Downloadable!]
  8. Craig Brett & John Weymark, 2007. "The Impact of Changing Skill Levels on Optimal Nonlinear Income Taxes," Working Papers 0708, Department of Economics, Vanderbilt University. [Downloadable!]
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