Optimal taxation under regional inequality

Sebastian Kessing, Vilen Lipatov and J. Malte Zoubek

European Economic Review, 2020, vol. 126, issue C

Abstract: We study how regional productivity differences and labor mobility shape optimal Mirrleesian tax-transfer schemes. When tax schedules are not allowed to differ across regions, productivity-enhancing inter-regional migration exerts a downward pressure on optimal marginal tax rates. When regionally differentiated taxation is allowed, marginal tax rates in high- (low-)productivity regions should be corrected downwards (upwards) relative to the benchmark without migration. Simulations of the productivity differences between metropolitan and other areas of the US indicate that migration affects the optimal tax-transfer schedule more strongly in the regionally differentiated rather than in the undifferentiated case.

Keywords: Optimal taxation; Place-based redistribution; Regional inequality; Migration; Multidimensional screening; Delayed optimal control (search for similar items in EconPapers)
JEL-codes: H11 J45 R12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Optimal Taxation under Regional Inequality (2020)
Working Paper: Optimal Taxation under Regional Inequality (2019)
Working Paper: Optimal Taxation under Regional Inequality (2015)
Working Paper: Optimal Taxation under Regional Inequality (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:126:y:2020:i:c:s0014292120300714

DOI: 10.1016/j.euroecorev.2020.103439

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