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Optimal Tax and Expenditure Policy in the Presence of Migration - Are Credit Restrictions Important?

Author

Listed:
  • Backlund, Kenneth

    () (Department of Economics, Umeå University)

  • Sjögren, Tomas

    () (Department of Economics, Umeå University)

  • Stage, Jesper

    () (Department of Social Sciences, Mid Sweden University)

Abstract

This paper concerns optimal income taxation in the presence of emigration. The basic model is a two-period model where all agents are identical and live in the home country in the first period of life, but where some emigrate at the end of the first period. It is shown that with a binding credit restriction, the government will tax labor income in the first period at a higher rate than otherwise, whereas the labor income tax in the second period is unaffected by emigration. With heterogenous agents, the labor income tax in period two will be affected by emigration.

Suggested Citation

  • Backlund, Kenneth & Sjögren, Tomas & Stage, Jesper, 2008. "Optimal Tax and Expenditure Policy in the Presence of Migration - Are Credit Restrictions Important?," Umeå Economic Studies 749, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0749
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    1. Yasuhiro Sato, 2004. "Migration, Frictional Unemployment, and Welfare-Improving Labor Policies," Journal of Regional Science, Wiley Blackwell, vol. 44(4), pages 773-793.
    2. Boadway, Robin & Marchand, Maurice & Vigneault, Marianne, 1998. "The consequences of overlapping tax bases for redistribution and public spending in a federation," Journal of Public Economics, Elsevier, vol. 68(3), pages 453-478, June.
    3. Aronsson, Thomas & Blomquist, Soren, 2003. "Optimal taxation, global externalities and labor mobility," Journal of Public Economics, Elsevier, vol. 87(12), pages 2749-2764, December.
    4. Kjetil Bjorvatn, 1998. "Taxation and Migration in a Federal System," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 345-355, July.
    5. Petter Osmundsen, 1999. "Taxing Internationally Mobile Individuals—A Case of Countervailing Incentives," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(2), pages 149-164, May.
    6. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-774, September.
    7. Boadway, Robin & Keen, Michael, 2000. "Redistribution," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 12, pages 677-789 Elsevier.
    8. Wilson, John D., 1982. "Optimal income taxation and migration : A world welfare point of view," Journal of Public Economics, Elsevier, vol. 18(3), pages 381-397, August.
    9. Wilson, John Douglas, 1992. "Optimal Income Taxation and International Personal Mobility," American Economic Review, American Economic Association, vol. 82(2), pages 191-196, May.
    10. Laurent Simula & Alain Trannoy, 2006. "Optimal Linear Income Tax when Agents Vote with their Feet," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(3), pages 393-415, September.
    11. Wilson, John D., 1982. "Optimal linear income taxation in the presence of emigration," Journal of Public Economics, Elsevier, vol. 18(3), pages 363-379, August.
    12. Pirttila, Jukka & Tuomala, Matti, 2001. "On optimal non-linear taxation and public good provision in an overlapping generations economy," Journal of Public Economics, Elsevier, vol. 79(3), pages 485-501, March.
    13. Petter Osmundsen & Guttorm Schjelderup & Kåre Petter Hagen, 2000. "Personal income taxation under mobility, exogenous and endogenous welfare weights, and asymmetric information," Journal of Population Economics, Springer;European Society for Population Economics, vol. 13(4), pages 623-637.
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    More about this item

    Keywords

    optimal taxation; labor mobility; intertemporal consumer choice;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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