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Optimal income taxation and the ability distribution: implications for migration equilibria

  • HAMILTON, Jonathan
  • PESTIEAU, Pierre

As recently argued by Diamond [1998], one of the key factors explaining the progressivity of an optimal non-linear income tax is the distribution of productivity among workers. Migration is one source of changes in the productivity distribution. How changes in the population's ability distribution affect optimal income tax schedules has received little attention. Changing the distribution generally changes both the objective function and the government budget constraint. We first consider the comparative statics of the fraction of highly-skilled workers with a Rawlsian welfare function (so that only the second effect is present) and a quasi-linear utility function. We perform the same analysis for a despotic social welfare function, and present some results for a utilitarian social welfare function. We study the interaction between mobility and redistributive taxation. We consider mobility by either the skilled or unskilled population in both Rawlsian and majority voting frameworks where governments take the population as fixed. Our main result is that equal ability distributions across jurisdictions is a stable equilibrium when the unskilled are mobile, but only under certain conditions when the skilled are mobile.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002036.

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Date of creation: 00 Jun 2002
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Handle: RePEc:cor:louvco:2002036
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  1. Jan K. Brueckner, 1999. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  2. Cremer, Helmuth & Pestieau, Pierre, 1998. "Social insurance, majority voting and labor mobility," Journal of Public Economics, Elsevier, vol. 68(3), pages 397-420, June.
  3. repec:ebl:ecbull:v:8:y:2002:i:2:p:1-6 is not listed on IDEAS
  4. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  5. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers 4, John Deutsch Institute for the Study of Economic Policy.
  6. Wilson, John Douglas, 1992. "Optimal Income Taxation and International Personal Mobility," American Economic Review, American Economic Association, vol. 82(2), pages 191-96, May.
  7. Flatters, Frank & Henderson, Vernon & Mieszkowski, Peter, 1974. "Public goods, efficiency, and regional fiscal equalization," Journal of Public Economics, Elsevier, vol. 3(2), pages 99-112, May.
  8. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1984. "Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice," Journal of Public Economics, Elsevier, vol. 24(3), pages 281-308, August.
  9. Leite-Monteiro, Manuel, 1997. "Redistributive policy with labour mobility across countries," Journal of Public Economics, Elsevier, vol. 65(2), pages 229-244, August.
  10. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-56, August.
  11. HINDRIKS, Jean, . "Mobility and redistributive politics," CORE Discussion Papers RP -1536, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September.
  13. Brueckner, Jan K. & Zenou, Yves, 1999. "Harris-Todaro models with a land market," Regional Science and Urban Economics, Elsevier, vol. 29(3), pages 317-339, May.
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