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Optimal Linear Income Tax when Agents Vote with their Feet

  • Laurent Simula
  • Alain Trannoy

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 effect 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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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 62 (2006)
Issue (Month): 3 (September)
Pages: 393-415

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200609)62:3_393:olitwa_2.0.tx_2-l
DOI: 10.1628/001522106X153446
Contact details of provider: Web page: https://www.mohr.de/fa

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  1. Hellwig, Martin F., 1986. "The optimal linear income tax revisited," Journal of Public Economics, Elsevier, vol. 31(2), pages 163-179, November.
  2. Helpman, Elhanan & Sadka, Efraim, 1978. "The optimal income tax : Some comparative statics results," Journal of Public Economics, Elsevier, vol. 9(3), pages 383-393, June.
  3. Parkash Chander & Louis L. Wilde, 1998. "A General Characterization of Optimal Income Tax Enforcement," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 165-183.
  4. Dixit, Avinash K & Sandmo, Angar, 1977. " Some Simplified Formulae for Optimal Income Taxation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(4), pages 417-23.
  5. Parkash Chander, 1998. "A Stronger Measure of Risk Aversion and a General Characterization of Optimal Income Tax Enforcement," Economics Working Paper Archive 399, The Johns Hopkins University,Department of Economics.
  6. J-F. Laslier & A. Trannoy & K. Van Der Straeten, 2000. "Voting Under Ignorance of Job Skills of Unemployed : The Overtaxation bias," THEMA Working Papers 2000-38, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  7. Eytan Sheshinski, 1972. "The Optimal Linear Income-tax," Review of Economic Studies, Oxford University Press, vol. 39(3), pages 297-302.
  8. Romer, T, 1976. "On the Progressivity of the Utilitarian Income Tax," Public Finance = Finances publiques, , vol. 31(3), pages 414-26.
  9. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  10. Mirrlees, J. A., 1982. "Migration and optimal income taxes," Journal of Public Economics, Elsevier, vol. 18(3), pages 319-341, August.
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