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Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments

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  • Etienne Lehmann
  • Laurent Simula
  • Alain Trannoy

Abstract

We investigate how potential tax-driven migrations modify the Mirrlees income tax schedule when two countries play Nash. The social objective is the maximin and preferences are quasi-linear in consumption. Individuals differ both in skills and migration costs, which are continuously distributed. We derive the optimal marginal income tax rates at the equilibrium, extending the Diamond-Saez formula. We show that the level and the slope of the semi-elasticity of migration (on which we lack empirical evidence) are crucial to derive the shape of optimal marginal income tax. JEL Codes: D82, H21, H87, F22.

Suggested Citation

  • Etienne Lehmann & Laurent Simula & Alain Trannoy, 2014. "Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1995-2030.
    • Handle: RePEc:oup:qjecon:v:129:y:2014:i:4:p:1995-2030
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    File URL: http://hdl.handle.net/10.1093/qje/qju027
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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