Do European Top Earners React to Labour Taxation Through Migration ?

Résumé 0

This paper studies the effects of top earnings tax rates on the mobility of top ten percent employees within Europe. I use a novel detailed micro-level dataset on mobility built from the largest European survey (EU-LFS), representative of the entire population of 21 European countries. My estimation strategy exploits the differential effects of changes in top income tax rates on individuals of different propensities to be treated by these changes. I find that top ten percent workers’ location choices are significantly affected by top income tax rates. I estimate a rather low but significant elasticity of the number of top earners with respect to net-of-tax rate that is between 0.1 and 0.3. The mobility response to taxes is especially strong for foreigners, with an estimated elasticity of the number of foreign top earners with respect to net-of-tax rate that is above one. Turning to tax policy implications, I uncover large heterogeneities within Europe, that translate into large differences in incentives to implement beggar-thy-neighbour policies across member states. These findings suggest that despite the overall moderate estimated mobility elasticity, tax competition entails substantial welfare costs.