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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)

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/digitalAssets/129/129502_wp20099.pdf
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Bibliographic 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
Email:
Web page: http://www.nek.uu.se/
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Related research

Keywords: Optimal Income Tax; Emigration; Participation Constraints; Highly Skilled;

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Cited by:
  1. Vilen Lipatov & Alfons Weichenrieder, 2010. "Optimal Income Taxation with Tax Competition," CESifo Working Paper Series 3108, CESifo Group Munich.
  2. 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.

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