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Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility

  • Craig Brett

    ()

    (Mount Allison University)

  • John Weymark

    ()

    (Department of Economics, Vanderbilt University)

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.

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File URL: http://www.accessecon.com/pubs/VUECON/vu08-w12.pdf
File Function: First version, 2008
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0812.

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Date of creation: Aug 2008
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Handle: RePEc:van:wpaper:0812
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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