Tax Me If You Can! Optimal Nonlinear Income Tax between Competing Governments

By Etienne Lehmann, Laurent Simula, Alain Trannoy. Social Science Research Network, 2014

141 citations recorded by the source corpus.

We investigate how potential tax-driven migrations modify the Mirrlees income tax schedule when two countries play Nash. The social objective is the maximin and preferences are quasilinear in income. Individuals differ both in skills and migration costs, which are continuously distributed. We derive the optimal marginal income tax rates at the equilibrium, extending the Diamond-Saez formula. The theory and numerical simulations on the US case show that the level and the slope of the semi-elasticity of migration on which we lack empirical evidence are crucial to derive the shape of optimal marginal income tax. Our simulations show that potential migrations result in a welfare drop between 0.4% and 5.3% for the worst-off and an average gain between 18.9% and 29.3% for the top 1%.

Subfields: Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/de0f7b45ac20a96993a05aee4937d9f28e0f54c1

Citations in the corpus

• Taxation and the International Mobility of Inventors (2016, unknown): “See also the more recent papers by Simula and Trannoy (2010) and especially Lehmann et al. (2014) who consider optimal nonlinear income taxation in the presence of migration.”
• Taxing the Rich (2016, unknown): “In a recent contribution, Lehmann et al. (2014) extend the Mirleesian setting by allowing for migration between two jurisdictions that play Nash when setting their tax schemes.10 In a parallel approach, we study the interplay of migration with the risk-shifting friction introduced here.”