To read the full version of this content please select one of the options below:

Optimal tax and expenditure policy in the presence of emigration: Are credit restrictions important?

Kenneth Backlund (Umeå School of Business and Economics, Umeå University, Umeå, Sweden)
Tomas Sjögren (Umeå School of Business and Economics, Umeå University, Umeå, Sweden)
Jesper Stage (Department of Business Administration, Technology and Social Sciences, Luleå University of Technology, Luleå, Sweden and Department of Business, Economics and Law, Mid Sweden University, Sundsvall, Sweden)

Indian Growth and Development Review

ISSN: 1753-8254

Article publication date: 4 November 2014

Abstract

Purpose

This paper aims to present a theoretical underpinning for the fact that empirical studies have found an inverted-U curve relationship between emigration and per capita income, based on credit restrictions. The implications for tax policy are also analyzed.

Design/methodology/approach

Using an intertemporal general equilibrium model, the authors characterize how the presence of an “inverted U-curve” relationship between emigration and per capita income will influence the optimal tax and expenditure policy in a country where agents have the option to move abroad.

Findings

Among the results it is shown that if age-dependent taxes are available, the presence of an inverted-U curve provides an incentive to tax young labor harder, but old labor less hard, than otherwise.

Originality/value

This migration model fits the empirical facts of migration better than most of the migration models previously used in the optimal taxation literature.

Keywords

Acknowledgements

A research grant from the Jan Wallander and Tom Hedelius Foundation is gratefully acknowledged. Tomas Sjögren would like to thank Åbo Akademi University for their immense hospitality. Jesper Stage acknowledges additional financial support from Elforsk. The usual disclaimers apply.

Citation

Backlund, K., Sjögren, T. and Stage, J. (2014), "Optimal tax and expenditure policy in the presence of emigration: Are credit restrictions important?", Indian Growth and Development Review, Vol. 7 No. 2, pp. 98-117. https://doi.org/10.1108/IGDR-09-2012-0040

Publisher

:

Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited