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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

    as
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    Cited by:

    1. Gietl, Daniel & Haufler, Andreas, 2016. "Bonus Taxes and International Competition for Bank Managers," Annual Conference 2016 (Augsburg): Demographic Change 145615, Verein für Socialpolitik / German Economic Association.
    2. Alejandro Esteller & Amedeo Piolatto & Matthew D. Rablen, 2016. "Taxing high-income earners: tax avoidance and mobility," IFS Working Papers W16/07, Institute for Fiscal Studies.
    3. Tomer Blumkin & Efraim Sadka & Yotam Shem-Tov, 2015. "International tax competition: zero tax rate at the top re-established," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 760-776, October.
    4. Tomer Blumkin & Efraim Sadka & Yotam Shem-Tov, 2011. "Labor Migration and the Case for Flat Tax," CESifo Working Paper Series 3471, CESifo Group Munich.
    5. Áron Tóbiás, 2015. "Income Redistribution in Open Economies," CESifo Working Paper Series 5378, CESifo Group Munich.
    6. Etienne Lehmann & Laurent Simula & Alain Trannoy, 2014. "Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments," The Quarterly Journal of Economics, Oxford University Press, vol. 129(4), pages 1995-2030.
    7. Laurent Simula, 2013. "Tax Competition and Migration," 2013 Meeting Papers 1126, Society for Economic Dynamics.
    8. Laurent Simula & Alain Trannoy, 2012. "Shall we keep the highly skilled at home? The optimal income tax perspective," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(4), pages 751-782, October.
    9. Barberà, Salvador & Beviá, Carmen & Ponsatí, Clara, 2015. "Meritocracy, egalitarianism and the stability of majoritarian organizations," Games and Economic Behavior, Elsevier, vol. 91(C), pages 237-257.
    10. Bierbrauer Felix J., 2016. "Effizienz oder Gerechtigkeit?," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(1), pages 2-24, April.
    11. Pierre C. Boyer & Hubert Kempf, 2016. "Regulatory Arbitrage and the Efficiency of Banking Regulation," CESifo Working Paper Series 5878, CESifo Group Munich.
    12. Vilen Lipatov & Alfons Weichenrieder, 2015. "Welfare and labor supply implications of tax competition for mobile labor," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 45(2), pages 457-477, September.
    13. Aronsson, Thomas & Johansson-Stenman, Olof, 2015. "Keeping up with the Joneses, the Smiths and the Tanakas: On international tax coordination and social comparisons," Journal of Public Economics, Elsevier, vol. 131(C), pages 71-86.
    14. Florence TOUYA, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers 2015-2016_12, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    15. Johannes Becker & Andrea Schneider, 2014. "Bidding for Firms with Unknown Characteristics," CESifo Working Paper Series 4806, CESifo Group Munich.
    16. Tóbiás, Áron, 2016. "Income redistribution in open economies," Journal of Public Economics, Elsevier, vol. 134(C), pages 19-34.
    17. GABSZEWICZ, Jean & TAROLA, Ornella, 2011. "Migration, wage differentials and fiscal competition," CORE Discussion Papers 2011065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    18. Vilen Lipatov & Alfons J. Weichenrieder, 2010. "Optimal Income Taxation with Tax Competition," CESifo Working Paper Series 3108, CESifo Group Munich.
    19. Felix Bierbrauer, 2016. "Effizienz oder Gerechtigkeit? Ungleiche Einkommen, ungleiche Vermögen und die Theorie der optimalen Besteuerung," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_03, Max Planck Institute for Research on Collective Goods.
    20. Florence TOUYA, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers 2015-2016_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    21. Remy Oddou, 2017. "The effect of a local allowance on the endogenous formation of jurisdictions," EconomiX Working Papers 2017-42, University of Paris Nanterre, EconomiX.
    22. Pierre C. Boyer & Hubert Kempf, 2017. "Regulatory arbitrage and the e ciency of banking regulation," Working Papers 2017-06, Center for Research in Economics and Statistics.
    23. Massimo Morelli & Huanxing Yang & Lixin Ye, 2012. "Competitive Nonlinear Taxation and Constitutional Choice," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 142-175, February.

    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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