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Tax Me if You Can! Optimal Nonlinear Income Tax between Competing Governments

  • Etienne Lehmann

    ()

    (CREST and CRED (TEPP) Universite Panth ´ eon-Assas)

  • Laurent Simula

    ()

    (Uppsala Center for Fiscal Studies & Department of Economics, Uppsala University)

  • Alain Trannoy

    ()

    (Aix-Marseille Universite (Aix-Marseille School of Economics) CNRS EHESS)

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 quasilinear 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.

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Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1415.

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Length: 29 pages
Date of creation: 14 May 2014
Date of revision: 14 May 2014
Handle: RePEc:aim:wpaimx:1415
Contact details of provider: Web page: http://www.amse-aixmarseille.fr/en

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