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Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments

Abstract : 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 quasi-linear in consumption. 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. We 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. JEL Codes: D82, H21, H87, F22.
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Etienne Lehmann, Laurent Simula, Alain Trannoy. Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments. Quarterly Journal of Economics, Oxford University Press (OUP), 2014, 129 (4), pp.1995--2030. ⟨10.1093/qje/qju027⟩. ⟨hal-01474437⟩

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