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Competitive Nonlinear Taxation and Constitutional Choice

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  • Massimo Morelli
  • Huanxing Yang
  • Lixin Ye

Abstract

In an economy where agents have different productivities and mobility, we compare a unified nonlinear optimal taxation with the equilibrium taxation that would be chosen by two competing tax authorities if the same economy were divided into two states. The overall level of progressivity and redistribution is unambiguously lower under competitive taxation; the "rich" are always in favor of competing authorities, whereas the "poor" are always in favor of unified taxation; the preferences of the middle class depend on the initial conditions in terms of the distribution of abilities, the relative power of the various classes, and mobility costs. (JEL D72, H21, H23, H24)

Suggested Citation

  • Massimo Morelli & Huanxing Yang & Lixin Ye, 2012. "Competitive Nonlinear Taxation and Constitutional Choice," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 142-175, February.
  • Handle: RePEc:aea:aejmic:v:4:y:2012:i:1:p:142-75 Note: DOI: 10.1257/mic.4.1.142
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Guiso, Luigi & Herrera, Helios & Morelli, Massimo, 2013. "A Cultural Clash View of the EU Crisis," CEPR Discussion Papers 9679, C.E.P.R. Discussion Papers.
    2. Bierbrauer, Felix & Brett, Craig & Weymark, John A., 2013. "Strategic nonlinear income tax competition with perfect labor mobility," Games and Economic Behavior, Elsevier, pages 292-311.
    3. Guiso, Luigi & Herrera, Helios & Morelli, Massimo, 2016. "Cultural Differences and Institutional Integration," Journal of International Economics, Elsevier, pages 97-113.
    4. Simula, Laurent & Trannoy, Alain, 2010. "Optimal income tax under the threat of migration by top-income earners," Journal of Public Economics, Elsevier, pages 163-173.
    5. Tomer Blumkin & Efraim Sadka & Yotam Shem-Tov, 2015. "International tax competition: zero tax rate at the top re-established," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 760-776, October.
    6. Tóbiás, Áron, 2016. "Income redistribution in open economies," Journal of Public Economics, Elsevier, pages 19-34.
    7. Etienne Lehmann & Laurent Simula & Alain Trannoy, 2014. "Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments," The Quarterly Journal of Economics, Oxford University Press, vol. 129(4), pages 1995-2030.
    8. Barberà, Salvador & Beviá, Carmen & Ponsatí, Clara, 2015. "Meritocracy, egalitarianism and the stability of majoritarian organizations," Games and Economic Behavior, Elsevier, vol. 91(C), pages 237-257.
    9. Luque, Jaime & Morelli, Massimo & Tavares, José, 2014. "A volatility-based theory of fiscal union desirability," Journal of Public Economics, Elsevier, pages 1-11.
    10. Pierre C. Boyer & Hubert Kempf, 2016. "Regulatory Arbitrage and the Efficiency of Banking Regulation," CESifo Working Paper Series 5878, CESifo Group Munich.
    11. Sebastian Blesse & Pierre C. Boyer & Friedrich Heinemann & Eckhard Janeba & Anasuya Raj, 2017. "Intégration européenne et politiques du marché du travail : quel consensus entre parlementaires français et allemands ?," Revue d'économie politique, Dalloz, pages 737-759.
    12. Vilen Lipatov & Alfons Weichenrieder, 2015. "Welfare and labor supply implications of tax competition for mobile labor," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 45(2), pages 457-477, September.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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