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Optimal tax and expenditure policy in the presence of emigration

Optimal tax and expenditure policy in the presence of emigration Purpose – This paper aims to present a theoretical underpinning for the fact that empirical studies have found an inverted-U curve relationship between emigration and per capita income, based on credit restrictions. The implications for tax policy are also analyzed. Design/methodology/approach – Using an intertemporal general equilibrium model, the authors characterize how the presence of an “inverted U-curve” relationship between emigration and per capita income will influence the optimal tax and expenditure policy in a country where agents have the option to move abroad. Findings – Among the results it is shown that if age-dependent taxes are available, the presence of an inverted-U curve provides an incentive to tax young labor harder, but old labor less hard, than otherwise. Originality/value – This migration model fits the empirical facts of migration better than most of the migration models previously used in the optimal taxation literature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Indian Growth and Development Review Emerald Publishing

Optimal tax and expenditure policy in the presence of emigration

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1753-8254
DOI
10.1108/IGDR-09-2012-0040
Publisher site
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Abstract

Purpose – This paper aims to present a theoretical underpinning for the fact that empirical studies have found an inverted-U curve relationship between emigration and per capita income, based on credit restrictions. The implications for tax policy are also analyzed. Design/methodology/approach – Using an intertemporal general equilibrium model, the authors characterize how the presence of an “inverted U-curve” relationship between emigration and per capita income will influence the optimal tax and expenditure policy in a country where agents have the option to move abroad. Findings – Among the results it is shown that if age-dependent taxes are available, the presence of an inverted-U curve provides an incentive to tax young labor harder, but old labor less hard, than otherwise. Originality/value – This migration model fits the empirical facts of migration better than most of the migration models previously used in the optimal taxation literature.

Journal

Indian Growth and Development Review – Emerald Publishing

Published: Nov 4, 2014

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