Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 544: Optimal Taxation, Global Externalities and Labor Mobility

Thomas Aronsson () and Sören Blomquist ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Sören Blomquist: Department of Economics, Postal: Uppsala University, S Box 513, 751 20 Uppsala, Sweden

Abstract: This paper addresses transboundary environmental problems in the context of an optimal tax problem, when part of the labor force is mobile across countries. The policy instruments include both commodity taxation and nonlinear income taxation. We show how the tax policy in a noncooperative equilibrium differs from that corresponding to a cooperative equilibrium. The results also indicate how a 'global policy maker' must act in order to make the national policy makers replicate the cooperative equilibrium.

Keywords: Transboundary externalities; fiscal federalism; optimal taxation

JEL-codes: H21; H23; Q20

34 pages, December 1, 2000

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