September 30, 2019
Written by WID.world

“Do European Top Earners React to Labour Taxation Through Migration ?”

This paper by Mathilde Muñoz studies the effects of top earnings tax rates on the mobility of top ten percent employees within Europe. Results show that top ten percent workers’ location choices are significantly affected by top income tax rates, and estimations give a rather low elasticity of the number of top earners with respect to net-of-tax rate that is between 0.1 and 0.3. By contrast, the mobility response to taxes is especially strong for foreigners as estimations show an elasticity of the number of foreign top earners with respect to net-of-tax rate that is above one. Turning to tax policy implications, this paper uncovers large heterogeneities within Europe, that translate into significant 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.

 

Figure : Difference in MIT across European countries

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