In this paper, individuals, initially living in a Mirrleesian economy A, have outside options consisting in settling down in a laissez-faire country B while paying positive migration costs. We first examine the impact of the threat of migration, assuming participation constraints are taken into account for all individuals, and show that optimal linear income taxes are obtained as corner solutions. We then consider a social criterion allowing emigration of the highest skilled individuals and show by means of an example that social welfare may rise following an increase in income redistribution, despite this resulting in the departure of the most productive individuals. Numerical simulations on French data illustrate the lack of degrees of freedom offered by linear taxation when agents can vote with their feet, which may be regarded as an argument against linear taxes.
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Paper provided by Institut d'economie publique (IDEP), Marseille, France in its series IDEP Working Papers with number
0606.
Find related papers by JEL classification: H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information F22 - International Economics - - International Factor Movements and International Business - - - International Migration
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Brito, Dagobert L & Oakland, William H, 1977.
"Some Properties of the Optimal Income-Tax,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 407-23, June.
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