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Abstract
We study how regional productivity di¤erences and labor mobility shape
optimal Mirrleesian tax-transfer schemes. When tax schedules are not al-
lowed to differ across regions, productivity-enhancing inter-regional migra-
tion exerts a downward pressure on optimal marginal tax rates. When
regionally di¤erentiated taxation is allowed, marginal tax rates in high-
(low-)productivity regions should be corrected downwards (upwards) rela-
tive to the benchmark without migration. Simulations of the productivity
di¤erences between metropolitan and other areas of the US indicate that
migration affects the optimal tax-transfer schedule more strongly in the
regionally differentiated rather than in the undi¤erentiated case.
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This item has been published with the following license: In Copyright