Competitive Nonlinear Taxation and Constitutional Choice

  title={Competitive Nonlinear Taxation and Constitutional Choice},
  author={Massimo Morelli and Huanxing Yang and Lixin Ye},
In an economy where agents have heterogeneous abilities and horizontally differentiated location preferences, we compare a unified nonlinear optimal taxation schedule with the equilibrium taxation schedules that would be chosen by two competing tax authorities if the same economy were divided into two States. This is the first analysis of competitive nonlinear income taxation, with unobserved heterogeneity in both vertical (ability) and horizontal (location preference) dimensions. We show that… CONTINUE READING