Is high-skilled migration harmful to tax systems’ progressivity?

Decreased transportation costs have led to the transmission of ideas and values across national borders that has helped reduce the barriers to international labor mobility. In this context, high-skilled individuals are more likely to vote with their feet in response to high income taxes. It is thus important to examine the magnitude of tax-driven migration responses in developed countries as well as the possible consequences of income tax competition between nation states. More specifically, how does the potential threat of migration affect a country’s optimal income tax policies?

Have a look at my recent policy article, co-written with Alain Trannoy:

http://ideas.repec.org/a/iza/izawol/journly2018n423.html

From Panama to BEPS: Tax Evasion or Tax Avoidance

This multi-disciplinary conference is sponsored by the Max Planck Institute for Tax Law and Public Finance, the Norwegian Centre for Taxation, and the University of Notre Dame. Notre Dame funding is provided by the Nanovic Institute for European Studies, Notre Dame International, and the Kellogg Institute for International Studies. The conference will take place in Bergen on November 1-2.

Within this framework, I was invited to present my work “Income shifting as income creation? The intensive vs. extensive” (joint with Håkan Selin from IFAU, Sweden).

 

“Marginal Deadweight Loss when the Income Tax is Nonlinear”

My article “Marginal Deadweight Loss when the Income Tax is Nonlinear” joint with Sören Blomquist has just been accepted for publication in the Journal of Econometrics.

Most theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. This is quite surprising because most income tax systems are nonlinear, generating nonlinear budget constraints. Instead of developing the proper procedure to calculate the marginal deadweight loss for variations in nonlinear income taxes, a common procedure has been to linearize the nonlinear budget constraint and apply methods that are correct for variations in a linear income tax. Such a procedure leads to incorrect results. The main purpose of this paper is to show how to correctly calculate the marginal deadweight loss when the income tax is nonlinear. A second purpose is to evaluate the bias in results that obtains when a linearization procedure is used. Our main theoretical result is that the overall curvature of the tax system plays the same role as the curvature of indifference curves for the size of the marginal deadweight loss. Using numerical simulations calibrated on US data, we show that common linearization procedures may lead to substantial overestimation of the marginal deadweight loss.