Optimal tax and expenditure policy in the presence of emigration: Are credit restrictions important?

• Purpose - Empirical studies have found an inverted-U curve relationship between emigration and per capita income. In this paper, a theoretical underpinning for this phenomenon is presented 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 - Our migration model fits the empirical facts of migration better than most of the migration models previously used in the optimal taxation literature.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Nyckelord

Optimal taxation

Labor mobility

Intertemporal consumer choice

Economics

Nationalekonomi

nationalekonomi

Publikations- och innehållstyp

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