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Optimal income tax under the threat of migration by top-income earners
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
Ecole des Hautes Etudes en Sciences Sociales, France.
2010 (English)In: Journal of Public Economics, ISSN 0047-2727, E-ISSN 1879-2316, Vol. 94, no 1-2, 163-173 p.Article in journal (Refereed) Published
Abstract [en]

We examine how allowing individuals to emigrate to pay lower taxes changes the optimal nonlinear 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. A simple formula, that complements Saez's formula obtained in closed economy, is derived for the marginal tax rates faced by top-income earners. It depends on the labour elasticity, the tax rate abroad and the migration costs expressed as a fraction of the utility obtained abroad. The Rawlsian marginal tax rates, obtained for the whole population, illustrate a curse of the middle-skilled. Simulations are provided for the French economy.

Place, publisher, year, edition, pages
2010. Vol. 94, no 1-2, 163-173 p.
Keyword [en]
Optimal income taxation; Top-income; Emigration; Participation constraints
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Research subject
URN: urn:nbn:se:uu:diva-132029DOI: 10.1016/j.jpubeco.2009.10.004ISI: 000274929100016OAI: oai:DiVA.org:uu-132029DiVA: diva2:356663
Available from: 2010-10-13 Created: 2010-10-13 Last updated: 2013-08-15Bibliographically approved

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Simula, Laurent
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