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Tax Me If You Can!Optimal Nonlinear Income Tax Between Competing Governments

  • Etienne Lehmann
  • Laurent Simula
  • Alain Trannoy

We investigate how potential tax-driven migrations modify the Mirrlees income tax schedule when two countries play Nash. The social objective is the maximin and preferences are quasilinear in consumption. Individuals differ both in skills and migration costs, which are continuously distributed. We derive the optimal marginal income tax rates at the equilibrium, extending the Diamond-Saez formula. We show that the level and the slope of the semi-elasticity of migration (on which we lack empirical evidence) are crucial to derive the shape of optimal marginal income tax.

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Paper provided by TEPP in its series TEPP Working Paper with number 2013-06.

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Date of creation: 2013
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Handle: RePEc:tep:teppwp:wp13-06
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  9. Juan Carlos Suárez Serrato & Owen Zidar, 2014. "Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms," NBER Working Papers 20289, National Bureau of Economic Research, Inc.
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  11. Laurent Simula & Alain Trannoy, 2011. "Shall we Keep the Highly Skilled at Home? The Optimal Income Tax Perspective," CESifo Working Paper Series 3326, CESifo Group Munich.
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