Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility

Felix Bierbrauer, Craig Brett and John Weymark

No 3329, CESifo Working Paper Series from CESifo

Abstract: Tax competition between two governments who choose nonlinear income tax schedules to maximize the average utility of its residents when skills are unobservable and labor is perfectly mobile is examined. We show that there are no Nash equilibria in which there is a skill type that pays positive taxes to one country and whose utility is larger than the average utility in the other country or in which the lowest skilled are subsidized. We also show that it is possible for the most highly skilled to receive a net transfer funded by taxes on lower skilled individuals in equilibrium. These findings confirm the race-to-the-bottom thesis in this setting.

Keywords: income tax competition; labor mobility; optimal income taxation; race to the bottom (search for similar items in EconPapers)
JEL-codes: D82 H21 H87 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Strategic nonlinear income tax competition with perfect labor mobility (2013)
Working Paper: Strategic Nonlinear Income Tax Competition with Perfect Labor Mobility (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3329

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