Tax Me If You Can! Optimal Nonlinear Income Tax between Competing Governments

Etienne Lehmann (), Laurent Simula and Alain Trannoy

No 2013:8, Working Paper Series, Center for Fiscal Studies from Uppsala University, Department of Economics

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.

Keywords: Optimal Income Tax; Income Tax competition; Migration; Labor Mobility; Nash-Equilibrium Tax Schedules (search for similar items in EconPapers)
JEL-codes: D82 H21 H87 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-07-24
New Economics Papers: this item is included in nep-acc, nep-mig, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments (2014)
Working Paper: Tax Me if You Can! Optimal Nonlinear Income Tax between Competing Governments (2014)
Working Paper: Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments (2014)
Working Paper: Tax Me If You Can! Optimal Nonlinear Income Tax between Competing Governments (2013)
Working Paper: Tax Me If You Can! Optimal Nonlinear Income Tax Between Competing Governments (2013)
Working Paper: Tax Me If You Can! Optimal Nonlinear Income Tax between Competing Governments (2013)
Working Paper: Tax Me If You Can!Optimal Nonlinear Income Tax Between Competing Governments (2013)
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