Central-city income redistribution and the flight to the suburbs: A stylized model

This paper characterizes the optimal tax policy of a central-city government whose goal is to redistribute income from the rich to the poor to maximize the intertemporal utility of the latter group. Since redistribution erodes the tax base by stimulating suburban flight on the part of the rich, choosing the optimal path for the income tax rate is a problem in optimal control. The nature of the solution to the problem is shown to depend crucially on the level of the discount rate and the time path of exogenous income for the poor.