Optimal Linear Income Tax When Highly-Skilled Individuals Vote with Their Feet

Individuals living in a Mirrleesian economy A have outside options consisting in moving to a laissez-faire country while paying migration costs. Three social points of view are distinguished according to the agents whose welfare is to count and type-dependent participation constraints taken into account. The first-best allocations are characterized by a curse of the middle-skilled workers. In the second-best, we extend Mirrlees's and Diamond's formulae when A prevents emigration of its nationals and implement the latter numerically using French data. We then examine for which individuals the participation constraints should be introduced and show that it depends on countervailing incentives