International Tax Competition: Zero Tax Rate at the Top Re-established
In this paper we extend the zero tax at the top result obtained in the closed economy case with bounded skill distributions for the case of unbounded skill distributions in the presence of international labor mobility and tax competition. We show that in the equilibrium for the tax competition game the optimal marginal income tax rate converges to zero as the income level tends to infinity. We further show in simulations that the zero marginal tax result is not a local property: over a large range at the higher end of the income distribution, the optimal tax is approximately given by a lump-sum tax set at its Laffer rate. We further show that the range in which the optimal marginal tax is approximately set to zero is widening as migration costs decrease.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
More information through EDIRC
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.:
- PIASER, Gwenaël, 2003.
"Labor mobility and income tax competition,"
CORE Discussion Papers
2003006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009.
"Optimal Taxation in Theory and Practice,"
NBER Working Papers
15071, National Bureau of Economic Research, Inc.
- N. Gregory Mankiw & Matthew C. Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Harvard Business School Working Papers 09-140, Harvard Business School.
- Mankiw, N. Gregory & Weinzierl, Matthew Charles & Yagan, Danny Ferris, 2009. "Optimal Taxation in Theory and Practice," Scholarly Articles 4263739, Harvard University Department of Economics.
- Peter A. Diamond & Emmanuel Saez, 2011.
"The Case for a Progressive Tax: From Basic Research to Policy Recommendations,"
CESifo Working Paper Series
3548, CESifo Group Munich.
- Peter Diamond & Emmanuel Saez, 2011. "The Case for a Progressive Tax: From Basic Research to Policy Recommendations," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 165-190, Fall.
- Salanié, Bernard, 2011.
"The Economics of Taxation,"
MIT Press Books,
The MIT Press,
edition 2, volume 1, number 0262016346.
- Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
- Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, December.
- J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
- Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 261-267.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_3820. 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: (Klaus Wohlrabe)
If references are entirely missing, you can add them using this form.