(picture source:Pixabay)

Recently, the paper "Relativity, Mobility and Optimal Nonlinear Income Taxation in An Open Economy", which was co-authored by assistant professor Darong Dai of Shanghai University of Finance and Economics and professor Tian Guoqiang of Texas A&M University, was published in Journal of Economic Behavior and Organization.

In an open economy with tax-driven migration and consumption externalities (relativity), this paper derives an optimal tax formula that subsumes existing ones obtained under a maximin social objective and additively separable utility and signs the second-best (Mirrleesian) marginal tax rates for all skill levels. They establish the thresholds of the elasticity and level of migration to determine when relativity and inequality act as complements or substitutes in shaping the optimal top tax rate. Under both Nash and Stackelberg tax competition if the migration probability of top-income workers is approximately 50%, numerical calculation using parameter estimates from empirical studies shows that the country with labor inflow (outflow) implements over 10% lower (higher) marginal tax rates than suggested by the autarky equilibrium of Kanbur and Tuomala (2013).

Journal of economic behavior and organization is an authoritative English journal in the field of economics recognized by domestic universities and research institutions, which mainly publishes economic theory and behavior research.