The curse of the middle-skilled workers

This paper is devoted to optimal income taxation in an open economy. It examines the consequences of the increasing mobility of high skilled workers between developed countries. We focus on a world consisting of two countries, a redistributive country and a laissez-faire country. We rst look into the rst-best optimal tax scheme when emigration of every agent is prevented. We prove that, under the optimal solution, there is a curse of the middle-skilled workers for every social welfare function with a nite aversion to income inequality. Then, we examine if it is always socially optimal to prevent high skilled emigration. Two social criteria are distinguished when emigration actually occurs. In the national criterion, the social objective depends on the welfare of every national. In the resident criterion, it depends on the welfare of every resident. It is proved that, under the national criterion, it is always socially optimal to prevent high-skilled emigration whilst, under the resident criterion, there are cases in which emigration of the highest skilled individuals is socially optimal.