Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79660
Authors: 
Lehmann, Etienne
Simula, Laurent
Trannoy, Alain
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper 4351
Abstract: 
We investigate how the optimal nonlinear income tax schedule is modified when taxpayers can evade taxation by emigrating. We consider two symmetric countries with Maximin governments. Workers choose their labor supply along the intensive margin. The skill distribution is continuous, and, for each skill level, the distribution of migration cost is also continuous. We show that optimal marginal tax rates are nonnegative at the symmetric Nash equilibrium when the semi-elasticity of migration is decreasing in the skill level. When the semi-elasticity of migration is increasing in the skill level, either optimal marginal tax rates are positive everywhere or they are positive for the lower part of the skill distribution and then negative. Numerical simulations are calibrated using plausible values of the semi-elasticity of migration for top income earners. We show that the shape of optimal tax schedule varies significantly, depending on the profile of the semi-elasticity of migration over the entire skill distribution - a profile over which we lack empirical evidence.
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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