Optimal Income Tax When Agents Vote with Their Feet: An Illustration on French Data
Revue Economique, May 2006
10 Pages Posted: 26 Apr 2006
What is the impact of the threat of migration for tax purposes on the optimum redistributive policy of a country which aims at preventing emigration of highly skilled individuals? We use the theory of optimum income taxation à la Mirrlees  to answer this question. The world consists of two countries, a redistributive country A and a laissez-faire country B. The agents living in A emigrate to B if they obtain in the latter a greater utility level, taking migration costs into account. We assume that there is no income-effect on labour supply. After having extended Diamond's  formula, we present simulation results concerning the optimal income tax schedule in France when agents vote with their feet. The optimum allocation is characterised by a curse of the middle-skilled workers and an upper bound on the average tax rate which depends on gross income.
Note: Downloadable document is in French.
Keywords: Optimal Income Tax, Participation Constraints, Individual Mobility, Emigration
JEL Classification: H21, F22
Suggested Citation: Suggested Citation