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Nonlinear Taxation and International Mobility in General Equilibrium

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  • Eckhard Janeba
  • Karl Schulz

Abstract

We study the nonlinear taxation of internationally mobile workers in general equilibrium. Contrary to conventional wisdom, in general equilibrium, migration lowers the bottom tax rate but raises the top tax rate, making the optimal tax system more progressive and moving tax rates closer to those in an economy with fixed wages. The intuition is that governments attract high-skilled workers by amplifying pre-tax wage inequality and partly offsetting trickle-down forces from production complementarities. This finding raises doubts about the importance of trickle-down for optimal taxation and offers a novel explanation for why globalization may increase tax progressivity and wage inequality.

Suggested Citation

  • Eckhard Janeba & Karl Schulz, 2021. "Nonlinear Taxation and International Mobility in General Equilibrium," CESifo Working Paper Series 9132, CESifo.
    • Handle: RePEc:ces:ceswps:_9132
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    Cited by:

    1. Janeba, Eckhard & Schulz, Karl, 2023. "Nonlinear taxation and international mobility in general equilibrium," Journal of Public Economics, Elsevier, vol. 218(C).
    2. Ferey, Antoine & Haufler, Andreas & Perroni, Carlo, 2023. "Incentives, globalization, and redistribution," Journal of Public Economics, Elsevier, vol. 224(C).
    3. KATO Hayato & Jonas LOEBBING, 2023. "Tax Competition for Automation Capital," Discussion papers 23078, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    optimal taxation; general equilibrium; trickle-down effects; migration; tax/subsidy competition;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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