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Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria

Listed author(s):
  • Jonathan Hamiltonet

    (Warrington College of Business Administration - University of Florida [Gainesville])

  • Pierre Pestieau

    (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, CREPP - Center of Research in Public Economics and Population Economics - Université de Liège, CEPR - Center for Economic Policy Research - CEPR, DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - CNRS - Centre National de la Recherche Scientifique - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales)

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 affects both the objective function and the government budget constraint. We first consider the comparative statics of the fraction of highly-skilled workers with maximin and maximax welfare functions (so that only the second effect is present) and a quasi-linear utility function. We also present some results for a utilitarian social welfare function. We then study the interaction between mobility and redistributive taxation. We consider mobility by either the skilled or unskilled population under majority voting where governments take the population as fixed. If individuals choose to relocate independently, having identical ability distributions is always a stable equilibrium when the unskilled are the mobile group. However, this is not always the case when the skilled are mobile. If groups of individuals can choose where to locate, having identical ability distributions across regions is only an equilibrium when the mobile type has an overall majority.

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Paper provided by HAL in its series Post-Print with number halshs-00754106.

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Date of creation: Jan 2005
Publication status: Published in International Tax and Public Finance, Springer Verlag, 2005, 12 (1), pp.29-45. <10.1007/s10797-005-6391-3>
Handle: RePEc:hal:journl:halshs-00754106
DOI: 10.1007/s10797-005-6391-3
Note: View the original document on HAL open archive server: https://hal-pjse.archives-ouvertes.fr/halshs-00754106
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

References listed on IDEAS
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  1. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
  2. Leite-Monteiro, Manuel, 1997. "Redistributive policy with labour mobility across countries," Journal of Public Economics, Elsevier, vol. 65(2), pages 229-244, August.
  3. Wilson, John Douglas, 1992. "Optimal Income Taxation and International Personal Mobility," American Economic Review, American Economic Association, vol. 82(2), pages 191-196, May.
  4. 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.
  5. Hindriks, Jean, 2001. " Mobility and Redistributive Politics," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(1), pages 95-120.
  6. 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.
  7. repec:ebl:ecbull:v:8:y:2002:i:2:p:1-6 is not listed on IDEAS
  8. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-656, August.
  9. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-1185, September.
  10. 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.
  11. Cremer, Helmuth & Pestieau, Pierre, 1998. "Social insurance, majority voting and labor mobility," Journal of Public Economics, Elsevier, vol. 68(3), pages 397-420, June.
  12. 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.
  13. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
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