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Optimal tax and expenditure policy in the presence of emigration

Author

Listed:
  • Kenneth Backlund
  • Tomas Sjögren
  • Jesper Stage

Abstract

Purpose - – This paper aims to present a theoretical underpinning for the fact that empirical studies have found an inverted-U curve relationship between emigration and per capita income, based on credit restrictions. The implications for tax policy are also analyzed. Design/methodology/approach - – Using an intertemporal general equilibrium model, the authors characterize how the presence of an “inverted U-curve” relationship between emigration and per capita income will influence the optimal tax and expenditure policy in a country where agents have the option to move abroad. Findings - – Among the results it is shown that if age-dependent taxes are available, the presence of an inverted-U curve provides an incentive to tax young labor harder, but old labor less hard, than otherwise. Originality/value - – This migration model fits the empirical facts of migration better than most of the migration models previously used in the optimal taxation literature.

Suggested Citation

  • Kenneth Backlund & Tomas Sjögren & Jesper Stage, 2014. "Optimal tax and expenditure policy in the presence of emigration," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 7(2), pages 98-117, November.
    • Handle: RePEc:eme:igdrpp:v:7:y:2014:i:2:p:98-117
    DOI: 10.1108/IGDR-09-2012-0040
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