Optimal tax and expenditure policy in the presence of emigration

Kenneth Backlund, Tomas Sjögren and Jesper Stage

Indian Growth and Development Review, 2014, vol. 7, issue 2, 98-117

Abstract: Purpose - – This paper aims to present a theoretical underpinning for the fact that empirical studies have found an inverted-U curve relationship between emigration and per capita income, based on credit restrictions. The implications for tax policy are also analyzed. Design/methodology/approach - – Using an intertemporal general equilibrium model, the authors characterize how the presence of an “inverted U-curve” relationship between emigration and per capita income will influence the optimal tax and expenditure policy in a country where agents have the option to move abroad. Findings - – Among the results it is shown that if age-dependent taxes are available, the presence of an inverted-U curve provides an incentive to tax young labor harder, but old labor less hard, than otherwise. Originality/value - – This migration model fits the empirical facts of migration better than most of the migration models previously used in the optimal taxation literature.

Keywords: Optimal taxation; Labor mobility; Intertemporal consumer choice (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eme:igdrpp:v:7:y:2014:i:2:p:98-117

DOI: 10.1108/IGDR-09-2012-0040

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