GEOGRAPHIC MOBILITY AND REDISTRIBUTION

I study the effect of progressive taxation on internal migration and welfare using a quantitative dynamic model of geographic mobility. The model, which is analytically tractable, predicts that a more progressive tax-transfer scheme reduces internal migration rates. The magnitude of this relationship is consistent with reduced-form evidence for OECD countries. The internal migration channel contributes to significantly lower optimal tax progressivity relative to the one-location version of the economy. The optimal sequence of tax progressivity along the transition features a relatively high degree of tax progressivity early on, followed by a declining path of tax progressivity over time.