Optimal Taxation under Regional Inequality

Optimal Taxation under Regional Inequality

We study how regional productivity di¤erences and labor mobility shape optimal Mirrleesian tax-transfer schemes. When tax schedules are not al- lowed to differ across regions, productivity-enhancing inter-regional migra- tion exerts a downward pressure on optimal marginal tax rates. When regiona...

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Bibliographic Details
Published in:MAGKS - Joint Discussion Paper Series in Economics (Band 13-2020)
Main Authors: Kessing, Sebastian G., Lipatov, Vilen, Zoubek, J. Malte
Format: Article
Language:English
Published: Philipps-Universität Marburg 2020
Subjects:
Optimal taxation
Wirtschaft
regional in- equality
delayed optimal control
migration
multidimensional screening
place-based redistribution
Economics
Online Access:PDF Full Text
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Summary:We study how regional productivity di¤erences and labor mobility shape optimal Mirrleesian tax-transfer schemes. When tax schedules are not al- lowed to differ across regions, productivity-enhancing inter-regional migra- tion exerts a downward pressure on optimal marginal tax rates. When regionally di¤erentiated taxation is allowed, marginal tax rates in high- (low-)productivity regions should be corrected downwards (upwards) rela- tive to the benchmark without migration. Simulations of the productivity di¤erences between metropolitan and other areas of the US indicate that migration affects the optimal tax-transfer schedule more strongly in the regionally differentiated rather than in the undi¤erentiated case.
Physical Description:42 Pages
ISSN:1867-3678
DOI:10.17192/es2024.0640

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