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Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility

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Author Info

  • Craig Brett

    ()
    (Mount Allison University)

  • John Weymark

    ()
    (Department of Economics, Vanderbilt University)

Abstract

The Nash equilibria of a tax-setting game between two governments who can set nonlinear income tax schedules for a perfectly mobile workforce whose members differ in unobserved skill levels are examined. Each government maximizes the average utility of its residents. It is shown that while equilibria exist, there do not exist equilibria in which either the most highly skilled pay positive taxes or the lowest skilled receive transfers. It is also shown that it is possible for the most highly skilled to receive a net transfer funded by taxes on lower skilled individuals in equilibrium.

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File URL: http://www.accessecon.com/pubs/VUECON/vu08-w12.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0812.

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Date of creation: Aug 2008
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Handle: RePEc:van:wpaper:0812

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Income tax competition; labor mobility; optimal income taxation; race to the bottom;

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References

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Citations

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Cited by:
  1. Johannes Becker & Andrea Schneider, 2014. "Bidding for Firms with Unknown Characteristics," CESifo Working Paper Series 4806, CESifo Group Munich.
  2. Massimo Morelli & Huanxing Yang & Lixin Ye, 2010. "Competitive Nonlinear Taxation and Constitutional Choice," Economics Working Papers ECO2010/14, European University Institute.
  3. Tomer Blumkin & Efraim Sadka & Yotam Shem-Tov, 2011. "Labor Migration and the Case for Flat Tax," CESifo Working Paper Series 3471, CESifo Group Munich.
  4. Etienne Lehmann & Laurent Simula & alain trannoy, 2013. "Tax Me If You Can! Optimal Nonlinear Income Tax Between Competing Governments," Working Papers halshs-00870053, HAL.
  5. Vilen Lipatov & Alfons Weichenrieder, 2012. "Optimal income taxation with tax competition," Working Papers 1207, Oxford University Centre for Business Taxation.
  6. GABSZEWICZ, Jean & TAROLA, Ornella, 2011. "Migration, wage differentials and fiscal competition," CORE Discussion Papers 2011065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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