Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/89855 
Year of Publication: 
2013
Series/Report no.: 
IZA Discussion Papers No. 7646
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
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 income. 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. The theory and numerical simulations on the US case 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. Our simulations show that potential migrations result in a welfare drop between 0.4% and 5.3% for the worst-off and an average gain between 18.9% and 29.3% for the top 1%.
Subjects: 
optimal income tax
income tax competition
migration
labor mobility
Nash-equilibrium tax schedules
JEL: 
D82
H21
H87
Document Type: 
Working Paper

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