Optimal Income Tax When Agents Vote with Their Feet: An Illustration on French Data

Revue Economique, May 2006

10 Pages Posted: 26 Apr 2006

See all articles by Laurent Simula

Laurent Simula

Ecole des Hautes Etudes en Sciences Sociales (EHESS); Research Group in Quantitative Economics of Aix-Marseilles (GREQAM); Paris Jourdan Sciences Economiques

Alain Trannoy

National Center for Scientific Research (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS)

Abstract

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 [1971] 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 [1998] 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

Simula, Laurent and Trannoy, Alain, Optimal Income Tax When Agents Vote with Their Feet: An Illustration on French Data. Revue Economique, May 2006. Available at SSRN: https://ssrn.com/abstract=898360

Laurent Simula (Contact Author)

Ecole des Hautes Etudes en Sciences Sociales (EHESS) ( email )

54, boulevard Raspail
Paris, 75006
France

HOME PAGE: http://www.ehess.fr

Research Group in Quantitative Economics of Aix-Marseilles (GREQAM) ( email )

Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France

Paris Jourdan Sciences Economiques ( email )

48, BD Jourdan
75014 Paris
France

Alain Trannoy

National Center for Scientific Research (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) ( email )

54, boulevard Raspail
Paris, 75006
France

Register to save articles to
your library

Register

Paper statistics

Downloads
38
Abstract Views
373
PlumX Metrics