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Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility

Author

Listed:
  • Craig Brett

    () (Mount Allison University)

  • John Weymark

    () (Department of Economics, Vanderbilt University)

Abstract

The Nash equilibria of a tax-setting game between two governments who can set nonlinear income tax schedules for a perfectly mobile workforce whose members differ in unobserved skill levels are examined. Each government maximizes the average utility of its residents. It is shown that while equilibria exist, there do not exist equilibria in which either the most highly skilled pay positive taxes or the lowest skilled receive transfers. It is also shown that it is possible for the most highly skilled to receive a net transfer funded by taxes on lower skilled individuals in equilibrium.

Suggested Citation

  • Craig Brett & John Weymark, 2008. "Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility," Vanderbilt University Department of Economics Working Papers 0812, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:0812
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Income tax competition; labor mobility; optimal income taxation; race to the bottom;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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