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

Etienne Lehmann (1, 2, 3) , Laurent Simula (4) , Alain Trannoy (5, 6)

1 TEPP - Travail, Emploi et Politiques Publiques
2 CREST - Centre de Recherche en Économie et Statistique
3 ERMES - Equipe de recherche sur les marches, l'emploi et la simulation
4 Uppsala Universitet [Uppsala]
5 EHESS - École des hautes études en sciences sociales
6 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille

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.

Keywords: Economie quantitative

Domains: Humanities and Social Sciences; Humanities and Social Sciences; Economics and Finance

Etienne Lehmann, Laurent Simula, Alain Trannoy. Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments. Quarterly Journal of Economics, 2014, 129 (4), pp.1995--2030. ⟨10.1093/qje/qju027⟩. ⟨hal-01474437⟩