Part 1 - AL-Tax

International Taxation Handbookequilibrium. Workers will have different costs to move, depending on theirpreferences.The consequences of labor mobility on redistribution have already been studiedin the literature. Hamilton et al. (2002) considered only a particular case: The governmentsare Rawlsian, 1 income taxes are linear, and the unskilled workers are perfectlymobile while the skilled workers are perfectly immobile. They showed thatin that case international mobility does not affect redistribution: A Rawlsian governmenthas no incentive to attract unskilled workers as long as it maximizes theirper-person utility by transferring income to them. It has an incentive to attractskilled workers who pay taxes, but in their model these skilled workers are immobile.This chapter generalizes this result as we will consider nonlinear taxation andallow for any kind of mobility.Hamilton and Pestieau (2001) have studied nonlinear income tax competition.They have considered both Rawlsian, despotic governments and majority votingoutcomes under different assumptions on the mobility of workers. Their assumptionson mobility are quite restrictive: Workers are perfectly mobile or perfectlyimmobile and both kinds of workers cannot be mobile together. Moreover, theyconsider small, open economies: Each country does not anticipate any effect ofits own redistribution scheme on international migration. In the following weconsider the opposite assumption: Our governments are strategic players whoanticipate that their taxes affect migration. 2Hindriks (1999) provided a model close to ours. The author discussed the levelof redistribution when workers are imperfectly mobile, but he did not allow forimperfect information between government and workers. Moreover, labor supplywas taken as exogenous. On the contrary, we will focus on imperfect information.Finally, from a technical point of view, this chapter is close to Rochet and Stole(2002), which analyzed the competition between two principals in a duopolyframework with random participation. In our model the cost of mobility playsthe same role as the random participation in limiting the effect of the Bertrandcompetition.This chapter extends Hindriks’s (1999) analysis to the asymmetric informationcase. To achieve this purpose, we will use some of the technical tools proposedby Rochet and Stole (2002). Equivalently, this chapter extends the results ofHamilton and Pestieau (2001) to the strategic case.The chapter is organized as follows. Section 4.2 introduces the basic frameworkof the study. Then the basic properties of the optimal taxation are addressed in section4.3. Sections 4.4 and 4.5 derive the properties of the competitive outcome underdifferent assumptions on the welfare criterion. Finally, section 4.6 concludes.76