Shall we Keep the Highly Skilled at Home? The Optimal Income Tax Perspective

Laurent Simula and Alain Trannoy

No 3326, CESifo Working Paper Series from CESifo

Abstract: We examine how allowing individuals to emigrate to pay lower taxes abroad changes the optimal non-linear 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. Three average social criteria are distinguished – national, citizen and resident – according to the agents whose welfare matters. A curse of the middle-skilled occurs in the first-best, and it may be optimal to let some highly skilled leave the country under the resident criterion. In the second-best, under the Citizen and Resident criteria, preventing emigration of the highly skilled is not necessarily optimal because the interaction between the incentive-compatibility and participations constraints may cause countervailing incentives. In important cases, a Rawlsian policymaker should decrease top marginal tax rates to keep everyone at home.

Keywords: optimal income tax; top-income earners; migration; incentive constraints; participation constraints (search for similar items in EconPapers)
JEL-codes: D82 F22 H21 H31 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Shall we keep the highly skilled at home? The optimal income tax perspective (2012)
Working Paper: Shall We Keep Highly Skilled at Home? The Optimal Income Tax Perspective (2009)
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