FSS-ECON Seminar: Competitive Nonlinear Income Taxation Revisited

Speaker: Prof. Lixin YE, Professor, Department of Economics, The Ohio State University

Date:28 May 2024 (Tue)

Time:14:00 – 15:15

Venue: E21B-G002

Language: English

Abstract: In the current literature on competitive nonlinear income taxation, competition is usually modeled as a game in which different tax authorities compete in tax schedules. An undesirable feature of this traditional approach is that the resource constraint is required only in equilibrium: following a deviation by one state, the resource constraints in other competing states are typically unbalanced. We propose a new approach in which the tax authorities compete in marginal tax rates, with the poll subsidies adjusting to satisfy budget balance. We show that our new approach in general leads to an equilibrium outcome different from the traditional approach. Under certain regular conditions we demonstrate that the new approach leads to increased competition, reducing the amount of income redistribution from high-income to low-income workers.