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Optimal Income Taxation with Tax Competition

Author

Listed:
  • Vilen Lipatov
  • Alfons J. Weichenrieder
  • Alfons Weichenrieder

Abstract

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.

Suggested Citation

  • Vilen Lipatov & Alfons J. Weichenrieder & Alfons Weichenrieder, 2010. "Optimal Income Taxation with Tax Competition," CESifo Working Paper Series 3108, CESifo.
    • Handle: RePEc:ces:ceswps:_3108
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    References listed on IDEAS

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    1. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
    2. Bierbrauer, Felix & Brett, Craig & Weymark, John A., 2013. "Strategic nonlinear income tax competition with perfect labor mobility," Games and Economic Behavior, Elsevier, vol. 82(C), pages 292-311.
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    13. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
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    15. Petter Osmundsen & Guttorm Schjelderup & Kåre Petter Hagen, 2000. "Personal income taxation under mobility, exogenous and endogenous welfare weights, and asymmetric information," Journal of Population Economics, Springer;European Society for Population Economics, vol. 13(4), pages 623-637.
    16. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
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    Cited by:

    1. Bierbrauer, Felix & Brett, Craig & Weymark, John A., 2013. "Strategic nonlinear income tax competition with perfect labor mobility," Games and Economic Behavior, Elsevier, vol. 82(C), pages 292-311.
    2. Sebastian Kessing & Bernhard Koldert, 2013. "Cross-border shopping and the Atkinson–Stiglitz theorem," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(4), pages 618-630, August.
    3. Etienne Lehmann & Laurent Simula & Alain Trannoy, 2014. "Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1995-2030.
    4. Mathilde Muñoz, 2021. "Do European Top Earners React to Labour Taxation Through Migration ?," PSE Working Papers halshs-03252899, HAL.
    5. Tóbiás, Áron, 2016. "Income redistribution in open economies," Journal of Public Economics, Elsevier, vol. 134(C), pages 19-34.
    6. Chen, Yu-Fu & Funke, Michael, 2010. "Global Warming And Extreme Events: Rethinking The Timing And Intensity Of Environmental Policy," SIRE Discussion Papers 2010-48, Scottish Institute for Research in Economics (SIRE).
    7. Kessing, Sebastian G. & Lipatov, Vilen & Zoubek, J. Malte, 2020. "Optimal taxation under regional inequality," European Economic Review, Elsevier, vol. 126(C).
    8. Michel Poitevin, 2018. "Concurrence fiscale et biens publics," CIRANO Project Reports 2018rp-09, CIRANO.
    9. Áron Tóbiás, 2015. "Income Redistribution in Open Economies," CESifo Working Paper Series 5378, CESifo.
    10. Laurent Simula, 2013. "Tax Competition and Migration," 2013 Meeting Papers 1126, Society for Economic Dynamics.
    11. Stilianos Alexiadis & Konstantinos Eleftheriou & Peter Nijkamp, 2021. "Club convergence of per capita disposable income in the United States," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(5), pages 1565-1580, October.
    12. Mathilde Munoz, 2019. "Do European Top Earners React to Labour Taxation Through Migration ?," PSE Working Papers hal-02876987, HAL.
    13. Mathilde Munoz, 2019. "Do European Top Earners React to Labour Taxation Through Migration ?," World Inequality Lab Working Papers hal-02876987, HAL.
    14. Mathilde Muñoz, 2021. "Do European Top Earners React to Labour Taxation Through Migration ?," Working Papers halshs-03252899, HAL.
    15. Mathilde Munoz, 2019. "Do European Top Earners React to Labour Taxation Through Migration ?," Working Papers hal-02876987, HAL.

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    More about this item

    Keywords

    optimal income tax; migration; unemployment; tax competition; Leviathan government;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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