Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms

IEB Working Paper N. 2018/06

79 Pages Posted: 11 Jun 2018

See all articles by David R. Agrawal

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration; CESifo (Center for Economic Studies and Ifo Institute)

Dirk Foremny

University of Barcelona (Department of Economics); Institut d'Economia de Barcelona; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 4 versions of this paper

Date Written: April 25, 2018

Abstract

A recent Spanish tax reform granted regions the authority to set income tax rates, resulting in substantial tax differentials. We use individual-level information from Social Security records over a period of one decade. Conditional on moving, taxes have a significant effect on location choice. A one percent increase in the net of tax rate for a region relative to others increases the probability of moving to that region by 1.7 percentage points. Focusing on the stock of top-taxpayers, we estimate an elasticity of the number of top taxpayers with respect to net-of-tax rates of 0.85. Using this elasticity, a theoretical model implies that the mechanical increase in tax revenue due to higher tax rates is larger than the loss in tax revenue from the out-flow of migration.

Keywords: Migration, Taxes, Mobility, Rich, Fiscal Decentralization

JEL Classification: H24, H31, H73, J61, R23

Suggested Citation

Agrawal, David R. and Foremny, Dirk, Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms (April 25, 2018). IEB Working Paper N. 2018/06, Available at SSRN: https://ssrn.com/abstract=3183820 or http://dx.doi.org/10.2139/ssrn.3183820

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration ( email )

433 Patterson Office Tower
Lexington, KY 40506-0027
United States
859-257-8608 (Phone)

HOME PAGE: http://www.uky.edu/~drag222/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.uky.edu/~drag222/

Dirk Foremny (Contact Author)

University of Barcelona (Department of Economics) ( email )

c/ John M. Keynes, 1-11
Barcelona, 08034
Spain

Institut d'Economia de Barcelona

Barcelona
Spain

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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