Labor Migration and the Case for Flat Tax
49 Pages Posted: 3 Jun 2011
Date Written: May 31, 2011
In this paper we employ a tax-competition model to demonstrate that in the presence of migration the re-distributive advantage of a non-linear income tax system over a linear (flat) one is significantly mitigated relative to the autarky (no-migration) equilibrium. When migration threats are sufficiently strong, a coordinated shift from a non-linear (prima-facie superior) system to a flat (inferior) regime is not too welfare-costly, even when the extent of re-distribution is significant. Therefore, such a shift may be warranted on administrative grounds. We also show, as expected, that migration reduces the extent of redistribution.
Keywords: flat tax, re-distribution, migration, tax-competition
JEL Classification: D600, H200, H500
Suggested Citation: Suggested Citation