Optimal Non-Linear Income Tax when Highly Skilled Individuals Vote with their Feet
AbstractThis paper examines how allowing individuals to emigrate to pay lower taxes changes the optimal non-linear income tax scheme in a Mirrleesian economy. Type-dependent participation constraints are borrowed from contract theory. 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 social criteria are distinguished according to the agents whose welfare matters. Mobility signi.cantly alters the closed-economy results qualitatively, but also quantitatively as verified by simulations. A curse of the middle-skilled occurs in the first-best. In the second-best, the middle-skilled can support the highest average tax rates and the marginal tax rates can be negative. Moreover, preventing emigration of the highly-skilled is not necessarily optimal.
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Bibliographic InfoPaper provided by Institut d'economie publique (IDEP), Marseille, France in its series IDEP Working Papers with number 0610.
Length: 42 pages
Date of creation: 18 Dec 2006
Date of revision: 18 Dec 2006
Optimal Taxation; Income Tax; Emigration; Participation Constraints;
Other versions of this item:
- Laurent Simula & Alain Trannoy, 2006. "Optimal Non-Linear Income Tax when Highly Skilled Individuals Vote with their Feet," IDEP Working Papers 0606, Institut d'economie publique (IDEP), Marseille, France, revised Sep 2006.
- Simula, L. & Trannoy, A., 2006. "Optimal Non-Linear Income Tax when Highly Skilled Individuals Vote with their Feet," Cambridge Working Papers in Economics 0656, Faculty of Economics, University of Cambridge.
- 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; Mechanism Design
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-02 (All new papers)
- NEP-MIC-2007-01-02 (Microeconomics)
- NEP-PBE-2007-01-02 (Public Economics)
- NEP-PUB-2007-01-02 (Public Finance)
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.:
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- Felix Bierbrauer & Craig Brett & John A. Weymark, 2011.
"Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility,"
CESifo Working Paper Series
3329, CESifo Group Munich.
- Bierbrauer, Felix & Brett, Craig & Weymark, John A., 2013. "Strategic nonlinear income tax competition with perfect labor mobility," Games and Economic Behavior, Elsevier, vol. 82(C), pages 292-311.
- Craig Brett & John Weymark, 2008. "Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility," Vanderbilt University Department of Economics Working Papers 0812, Vanderbilt University Department of Economics.
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