Optimal Income Taxation with Tax Competition

21 Pages Posted: 6 Jul 2010

See all articles by Vilen Lipatov

Vilen Lipatov

Compass Lexecon Brussels

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 30, 2010

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.

Keywords: optimal income tax, migration, unemployment, tax competition, Leviathan government

JEL Classification: F22, H21

Suggested Citation

Lipatov, Vilen and Weichenrieder, Alfons J., Optimal Income Taxation with Tax Competition (June 30, 2010). CESifo Working Paper Series No. 3108, Available at SSRN: https://ssrn.com/abstract=1634792 or http://dx.doi.org/10.2139/ssrn.1634792

Vilen Lipatov (Contact Author)

Compass Lexecon Brussels ( email )

23 Square de Meeus
Bruxelles, 1000
Belgium

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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