Optimal Income Tax under the Threat of Migration by Top-Income Earners

Alain Trannoy, Laurent Simula and ()
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Alain Trannoy, Laurent Simula and: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Authors registered in the RePEc Author Service: Alain Trannoy and Laurent Simula

No 2009:8, Working Paper Series, Center for Fiscal Studies from Uppsala University, Department of Economics

Abstract: We examine how allowing individuals to emigrate to pay lower taxes changes the optimal nonlinear 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. A simple formula, that complements Saez’s formula obtained in closed economy, is derived for the marginal tax rates faced by top-income earners. It depends on the labour elasticity, the tax rate abroad and the migration costs expressed as a fraction of the utility obtained abroad. The Rawlsian marginal tax rates, obtained for the whole population, illustrate a curse of the middle-skilled. Simulations are provided for the French economy.

Keywords: Optimal Income Taxation; Top income; Emigration; Participation Constraints (search for similar items in EconPapers)
JEL-codes: D82 F22 H21 H31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2009-10-12
New Economics Papers: this item is included in nep-mig
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Citations: View citations in EconPapers (4)

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Journal Article: Optimal income tax under the threat of migration by top-income earners (2010)
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