Optimal Income Taxation with Tax Competition
Goethe University Frankfurt
Alfons J. Weichenrieder
University of Frankfurt - Chair of Public Finance; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Vienna University of Economics and Business Administration
June 30, 2010
CESifo Working Paper Series No. 3108
We introduce tax competition for mobile labor into an optimal-taxation model with two skill levels. We analyze a symmetric subgame-perfect Nash equilibrium of the game between two governments and two taxpayer populations. Tax competition reduces the distortion from the informational asymmetry and increases employment of the less productive individuals. When countries are heterogeneous, this effect is more pronounced in the smaller country.
Number of Pages in PDF File: 21
Keywords: optimal income tax, migration, unemployment, tax competition, Leviathan government
JEL Classification: F22, H21working papers series
Date posted: July 6, 2010
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