Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria

Jonathan Hamiltonet and Pierre Pestieau
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Jonathan Hamiltonet: Warrington College of Business Administration - UF - University of Florida [Gainesville]

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Abstract: As recently argued by Diamond (1998), one of the key factors explaining the progressivity of an optimal non-linear income tax is the distribution of productivity among workers. Migration is one source of changes in the productivity distribution. How changes in the population's ability distribution affect optimal income tax schedules has received little attention. Changing the distribution generally affects both the objective function and the government budget constraint. We first consider the comparative statics of the fraction of highly-skilled workers with maximin and maximax welfare functions (so that only the second effect is present) and a quasi-linear utility function. We also present some results for a utilitarian social welfare function. We then study the interaction between mobility and redistributive taxation. We consider mobility by either the skilled or unskilled population under majority voting where governments take the population as fixed. If individuals choose to relocate independently, having identical ability distributions is always a stable equilibrium when the unskilled are the mobile group. However, this is not always the case when the skilled are mobile. If groups of individuals can choose where to locate, having identical ability distributions across regions is only an equilibrium when the mobile type has an overall majority.

Keywords: Optimal income taxation; Tax competition; Migration (search for similar items in EconPapers)
Date: 2005-01
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Citations: View citations in EconPapers (53)

Published in International Tax and Public Finance, 2005, 12 (1), pp.29-45. ⟨10.1007/s10797-005-6391-3⟩

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Journal Article: Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria (2005)
Working Paper: Optimal income taxation and the ability distribution: implications for migration equilibria (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00754106

DOI: 10.1007/s10797-005-6391-3

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