Monday, April 27, 2015

Taxicity is the mother of relocation

Ho hum, U Penn researchers Ufuk Akcigit, Salome Baslandze and Stefanie Stantcheva pile up more evidence that the reports of the death of the  Laws of Supply and Demand are greatly exaggerated;
Kleven et al. (2014) study a Danish tax reform that temporarily reduced top tax rates on high income foreigners and they find very strong effects on the inflow of migrants. In another recent paper Kleven, Landais, and Saez (2013) show that highly paid football players react to top tax rates when choosing in which country to work. Of course, we can’t extrapolate from their football players estimates for other professions, since football players are typically very young and mobile.
So, they looked elsewhere;
In recent research (Akcigit, Baslandze, and Stantcheva 2015) we study the international migration responses of superstar inventors to top income tax rates for the period 1977-2003 ....
And, no surprise;
The results highlight that superstar top 1% inventors are significantly affected by top tax rates when deciding where to live. For instance, our results suggest that, given a ten percentage point decrease in top tax rates, the average country would be able to retain 1% more domestic superstar inventors and attract 38% more foreign superstar inventors.
The poster child? France of course. If she dropped her top marginal rate from 72% to 62%, expect to retain 6.1% more French inventors, and see in-migration of 56.4% more foreigners. The Uk could expect to retain 10% of its most creative types if it lowered its rate to 45%, but only welcome 35% more foreigners.

The USA already has the lowest top rates, so lowering 10 points (47% down to 37%) wouldn't see much change in retention--where are they going to move to now?--but might see a significant increase in immigrants.

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