Optimal Income Tax When Agents Vote with Their Feet : An Illustration on French Data

What is the impact of the threat of migration for tax purposes on the optimum redistributive policy of a country which aims at preventing emigration of highly skilled individuals? We use the theory of optimum income taxation agrave; la Mirrlees [1971] to answer this question. The world consists of two countries, a redistributive country A and a laissez-faire country B. The agents living in A emigrate to B if they obtain in the latter a greater utility level, taking migration costs into account. We assume that there is no income-effect on labour supply. After having extended Diamond's [1998] formula, we present simulation results concerning the optimal income tax schedule in France when agents vote with their feet. The optimum allocation is characterised by a curse of the middle-skilled workers and an upper bound on the average tax rate which depends on gross income