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Optimal Income Tax under the Threat of Migration by Top-Income Earners

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Author Info
Alain Trannoy, Laurent Simula and () (Uppsala Center for Fiscal Studies)

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Abstract

We examine how allowing individuals to emigrate to pay lower taxes changes the optimal nonlinear 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. A simple formula, that complements Saez’s formula obtained in closed economy, is derived for the marginal tax rates faced by top-income earners. It depends on the labour elasticity, the tax rate abroad and the migration costs expressed as a fraction of the utility obtained abroad. The Rawlsian marginal tax rates, obtained for the whole population, illustrate a curse of the middle-skilled. Simulations are provided for the French economy.

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Publisher Info
Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2009:8.

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Length: 26 pages
Date of creation: 12 Oct 2009
Date of revision:
Handle: RePEc:hhs:uufswp:2009_008

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Related research
Keywords: Optimal Income Taxation; Top income; Emigration; Participation Constraints;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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This page was last updated on 2009-11-8.

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