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Labor Migration and the Case for Flat Tax

Author

Listed:
  • Tomer Blumkin
  • Efraim Sadka
  • Yotam Shem-Tov

Abstract

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.

Suggested Citation

  • Tomer Blumkin & Efraim Sadka & Yotam Shem-Tov, 2011. "Labor Migration and the Case for Flat Tax," CESifo Working Paper Series 3471, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3471
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3471.pdf
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    References listed on IDEAS

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    1. Bierbrauer, Felix & Brett, Craig & Weymark, John A., 2013. "Strategic nonlinear income tax competition with perfect labor mobility," Games and Economic Behavior, Elsevier, vol. 82(C), pages 292-311.
    2. Gwenael Piaser, 2003. "Labor Mobility and Income Tax Competition," Public Economics 0302002, EconWPA.
    3. 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.
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    6. Anna Ivanova & Michael Keen & Alexander Klemm, 2005. "The Russian ‘flat tax’ reform," Economic Policy, CEPR;CES;MSH, vol. 20(43), pages 397-444, July.
    7. 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, April.
    8. Simula, Laurent & Trannoy, Alain, 2010. "Optimal income tax under the threat of migration by top-income earners," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 163-173, February.
    9. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, June.
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    12. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-656, August.
    13. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(2), pages 269-304, June.
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    More about this item

    Keywords

    flat tax; re-distribution; migration; tax-competition;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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