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

Author

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  • 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)

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 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.

Suggested Citation

  • Etienne Lehmann & Laurent Simula & Alain Trannoy, 2014. "Tax Me if You Can! Optimal Nonlinear Income Tax between Competing Governments," AMSE Working Papers 1415, Aix-Marseille School of Economics, France, revised 14 May 2014.
    • Handle: RePEc:aim:wpaimx:1415
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    More about this item

    Keywords

    optimal income tax; income tax competition; migration; labor mobility; Nash-equilibrium tax schedules;
    All these keywords.

    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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