Individuals, initially living in a Mirrleesian economy A, have outside options consisting in settling down in a laissez-faire country B while paying positive migration costs. We first examine the effect of the threat of migration, assuming participation constraints are taken into account for all...

Nonlinear income taxes and linear commodity taxes are analyzed when people differ with respect to ability, high-skill agents have heterogeneous preferences, and neither individual abilities nor preferences are observable. We characterize pure income tax optima, which may be bunching or...