Optimal income tax under the threat of migration by top-income earners

We examine how allowing individuals to emigrate to pay lower taxes changes the optimal nonlinear income tax scheme in a Mirrleesian economy An individual emigrates if his domestic utility IS less than his utility abroad, net of migration costs - utilities and costs both depending oil productivity. A simple formula, that complements Saez's formula obtained in closed economy. is derived for the marginal tax rates faced by top-income earners It depends oil the labour elasticity, the tax rate abroad and the migration costs expressed as a fraction of the utility obtained abroad The Rawlsian marginal tax rates, obtained for the whole population, illustrate a Cut se of the middle-skilled Simulations are provided for the French economy (C) 2009 Elsevier B V All rights reserved