Optimal Non-Linear Income Tax when Highly Skilled Individuals Vote with their Feet
This paper examines how allowing individuals to emigrate to pay lower taxes changes the optimal non-linear income tax scheme in a Mirrleesian economy. Type-dependent participation constraints are borrowed from contract theory. An individual emigrates if his domestic utility is less than his utility abroad net of migration costs, utilities and costs both depending on productivity. Three social criteria are distinguished according to the agents whose welfare matters. Mobility significantly alters the closed-economy results qualitatively, but also quantitatively as veri.ed by simulations. A curse of the middle-skilled occurs in the first-best. In the second-best, the middle-skilled can support the highest average tax rates and the marginal tax rates can be negative. Moreover, preventing emigration of the highly-skilled is not necessarily optimal.
|Date of creation:||Oct 2006|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.cam.ac.uk/index.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brito, Dagobert L & Oakland, William H, 1977. "Some Properties of the Optimal Income-Tax," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 407-23, June.
- Chander, Parkash & Wilde, Louis L, 1998. "A General Characterization of Optimal Income Tax Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 165-83, January.
- Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier.
- Wilson, John D., 1982. "Optimal linear income taxation in the presence of emigration," Journal of Public Economics, Elsevier, vol. 18(3), pages 363-379, August.
- Laurent Simula & Alain Trannoy, 2006. "Optimal Linear Income Tax when Agents Vote with their Feet," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(3), pages 393-415, September.
- Wilson, John D., 1982. "Optimal income taxation and migration : A world welfare point of view," Journal of Public Economics, Elsevier, vol. 18(3), pages 381-397, August.
When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0656. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Howard Cobb)
If references are entirely missing, you can add them using this form.