Optimal income taxation and migration: a world welfare point of view

This paper considers a world in which a distortionary income tax must be employed to raise and redistribute revenue. The optimal taxation of emigrants relative to those left behind is examined under the objective of world social welfare maximization. When tastes for consumption and labor do not depend directly on residence, the optimal tax system induces individuals to reside where the marginal products of their chosen labor supplies are highest. This paper also proves the existence of an optimal tax system under which each individual resides where he pays the greatest tax. This result holds even when tastes are allowed to vary with residence in an interesting way.