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

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 2009:9, 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 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, we provide an extension of Saez’s formula for the optimal marginal tax rates. The middle-skilled can support the highest average tax rates and the marginal tax rates can be negative. Preventing emigration of the highly skilled is not necessarily optimal under the citizen and resident criteria.

Keywords: Optimal Income Tax; Emigration; Participation Constraints; Highly Skilled (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 (3)

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Related works:
Journal Article: Shall we keep the highly skilled at home? The optimal income tax perspective (2012) Downloads
Working Paper: Shall we Keep the Highly Skilled at Home? The Optimal Income Tax Perspective (2011) Downloads
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