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Title:Strategic nonlinear income tax competition with perfect labor mobility PDF Logo
Authors:Bierbrauer, Felix
Brett, Craig
Weymark, John A.
Issue Date:2011
Series/Report no.:CESifo working paper: Public Finance 3329
Abstract:Tax competition between two governments who choose nonlinear income tax schedules to maximize the average utility of its residents when skills are unobservable and labor is perfectly mobile is examined. We show that there are no Nash equilibria in which there is a skill type that pays positive taxes to one country and whose utility is larger than the average utility in the other country or in which the lowest skilled are subsidized. We also show that it is possible for the most highly skilled to receive a net transfer funded by taxes on lower skilled individuals in equilibrium. These findings confirm the race-to-the-bottom thesis in this setting.
Subjects:income tax competition
labor mobility
optimal income taxation
race to the bottom
JEL:D82
H21
H87
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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