Optimal income tax under the threat of migration by top-income earners

Laurent Simula and Alain Trannoy

Journal of Public Economics, 2010, vol. 94, issue 1-2, 163-173

Abstract: 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.

Keywords: Optimal; income; taxation; Top-income; Emigration; Participation; constraints (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (89)

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Working Paper: Optimal Income Tax under the Threat of Migration by Top-Income Earners (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:94:y:2010:i:1-2:p:163-173

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