Optimal Linear Income Tax when Agents Vote With their Feet
نویسندگان
چکیده
We consider that individuals, initially living in a Mirrleesian economy A, have outside options consisting in settling down in a laissez-faire country B while paying positive migration costs. We rst examine the impact of the threat of migration, assuming participation constraints are taken into account for all individuals, and show that optimal linear income taxes are obtained as corner solutions. We then consider a social criterion allowing emigration of the highest skilled individuals and show by means of an example that social welfare may increase following the departure of the most productive individuals in A. Numerical simulations on French data illustrate the lack of degrees of freedom offered by linear taxation when agents can vote with their feet, which may be regarded as an argument against linear taxes.
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