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Optimal mixed taxation, public goods and the problem of high-skilled emigration

Xavier Ruiz del Portal

Journal of Economics, 2017, vol. 122, issue 2, 97-119

Abstract: Abstract The optimal income tax model under the threat of migration of Simula and Trannoy (J Public Econ 94:163–173, 2010; Soc Choice Welf 39(4):751–782, 2012) is extended to include indirect taxes and public goods. This enables us to conclude that: (1) optimal income tax rates are higher than in the absence of indirect taxation, and may be positive at the top of the skills distribution; (2) indirect taxes, à la Corlett and Hague, may help mitigate the loss of redistributive capacity arising from income taxation caused by migration threats; (3) migration encourages the provision of the public goods preferred by the most productive workers; (4) optimal tax and public goods provision policies against the emigration of the highly-skilled are connected through the conditions for Pareto efficiency; (5) if the number of potential migrators is large, it may be desirable to violate classical tax rules to retain the most able in the home country; (6) when migration costs are exogenously given and utility is weakly separable, Simula and Trannoy’s results are restored; (7) if migration costs are endogenous, the Atkinson and Stiglitz theorem breaks down and the taxation of country-specific goods becomes desirable, even if utility is strongly separable.

Keywords: Commodity taxation; Participation constraint; Migration; Public goods (search for similar items in EconPapers)
JEL-codes: C6 D6 D8 H2 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:jeczfn:v:122:y:2017:i:2:d:10.1007_s00712-017-0536-6