Welfare and labor supply implications of tax competition for mobile labor

Vilen Lipatov and Alfons Weichenrieder

Social Choice and Welfare, 2015, vol. 45, issue 2, 457-477

Abstract: We introduce tax competition for mobile labor into an optimal-taxation model with two skill levels and analyze a subgame-perfect Nash equilibrium of the game between two governments and two taxpayer populations. Tax competition reduces the distortion from the informational asymmetry and increases labor supply of the less productive individuals. When one of the countries has a larger population, this effect is more pronounced in the smaller country. Tax competition generally tends to make societies more libertarian. Particular welfare effects for high and low skilled depend on the form of the government objective function. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: H21; F22; H71; D63 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s00355-015-0898-z

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