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Shall We Keep Highly Skilled at Home? The Optimal Income Tax Perspective

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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 abroad changes the optimal non-linear 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. Three average social criteria are distinguished – national, citizen and resident – according to the agents whose welfare matters. A curse of the middle-skilled occurs in the first-best and it may be optimal to let some highly skilled leave the country under the resident criterion. In the second-best, we provide an extension of Saez’s formula for the optimal marginal tax rates. The middle-skilled can support the highest average tax rates and the marginal tax rates can be negative. Preventing emigration of the highly skilled is not necessarily optimal under the citizen and resident criteria.

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File URL: http://ucfs.nek.uu.se/wp/wp2009_9.pdf
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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 2009:9.

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Length: 26 pages
Date of creation: 12 Oct 2009
Date of revision:
Handle: RePEc:hhs:uufswp:2009_009

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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 Tax; Emigration; Participation Constraints; Highly Skilled;

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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