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Labor Migration and the Case for Flat Tax

  • Tomer Blumkin
  • Efraim Sadka
  • Yotam Shem-Tov
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    In this paper we employ a tax-competition model to demonstrate that in the presence of migration the re-distributive advantage of a non-linear income tax system over a linear (flat) one is significantly mitigated relative to the autarky (no-migration) equilibrium. When migration threats are sufficiently strong, a coordinated shift from a non-linear (prima-facie superior) system to a flat (inferior) regime is not too welfare-costly, even when the extent of re-distribution is significant. Therefore, such a shift may be warranted on administrative grounds. We also show, as expected, that migration reduces the extent of redistribution.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-05/cesifo1_wp3471.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3471.

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    Date of creation: 2011
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    Handle: RePEc:ces:ceswps:_3471
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    1. Michael Keen & Alexander Klemm & Anna Ivanova, 2005. "The Russian Flat Tax Reform," IMF Working Papers 05/16, International Monetary Fund.
    2. Hindriks, Jean, 1999. "The consequences of labour mobility for redistribution: tax vs. transfer competition," Journal of Public Economics, Elsevier, vol. 74(2), pages 215-234, November.
    3. Craig Brett & John Weymark, 2008. "Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility," Vanderbilt University Department of Economics Working Papers 0812, Vanderbilt University Department of Economics.
    4. Alan Krause, 2009. "Education and Taxation Policies in the Presence of Countervailing Incentives," Economica, London School of Economics and Political Science, vol. 76(302), pages 387-399, 04.
    5. Jonathan Hamilton & Pierre Pestieau, 2005. "Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria," International Tax and Public Finance, Springer, vol. 12(1), pages 29-45, January.
    6. Petter Osmundsen, 1999. "Taxing Internationally Mobile Individuals—A Case of Countervailing Incentives," International Tax and Public Finance, Springer, vol. 6(2), pages 149-164, May.
    7. repec:eui:euiwps:eco2010/14 is not listed on IDEAS
    8. Wilson, John Douglas, 1992. "Optimal Income Taxation and International Personal Mobility," American Economic Review, American Economic Association, vol. 82(2), pages 191-96, May.
    9. Alain Trannoy, Laurent Simula and, 2009. "Optimal Income Tax under the Threat of Migration by Top-Income Earners," Working Paper Series, Center for Fiscal Studies 2009:8, Uppsala University, Department of Economics.
    10. Gwenael Piaser, 2003. "Labor Mobility and Income Tax Competition," Public Economics 0302002, EconWPA.
    11. Wildasin, D.E., 1992. "Income Restribution and Migration," Papers 92-003, Indiana - Center for Econometric Model Research.
    12. Gorodnichenko, Yuriy & Martinez-Vazquez, Jorge & Peter, Klara Sabirianova, 2007. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," IZA Discussion Papers 3267, Institute for the Study of Labor (IZA).
    13. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
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