Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46494
Authors: 
Simula, Laurent
Trannoy, Alain
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Public Finance 3326
Abstract: 
We examine how allowing individuals to emigrate to pay lower taxes abroad changes the optimal non-linear income tax scheme in a Mirrleesian economy. An individual emigrates if his domestic utility is less than his utility abroad net of migration costs, utilities and costs both depending on productivity. Three average social criteria are distinguished - national, citizen and resident - according to the agents whose welfare matters. A curse of the middle-skilled occurs in the first-best, and it may be optimal to let some highly skilled leave the country under the resident criterion. In the second-best, under the Citizen and Resident criteria, preventing emigration of the highly skilled is not necessarily optimal because the interaction between the incentive-compatibility and participations constraints may cause countervailing incentives. In important cases, a Rawlsian policymaker should decrease top marginal tax rates to keep everyone at home.
Subjects: 
optimal income tax
top-income earners
migration
incentive constraints
participation constraints
JEL: 
H21
H31
D82
F22
Document Type: 
Working Paper

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