Tax Expenditures and Global Labor Mobility

Abstract:     
Governments often deliver social welfare bene-fits through “tax expenditures,” which are provisions of the tax code (such as home mort-gage deductions) designed to serve social pol-icy objectives. This Article considers the criteria for granting tax expenditures to in-dividuals who work outside the state where they reside. International tax norms current-ly assign the primary entitlement to tax labor income to the state where the taxpayer works, but they assign the obligation to confer per-sonal tax expenditures exclusively to the state where the taxpayer resides. This Ar-ticle argues that the disjunction between the entitlement to tax and the obligation to pro-vide tax benefits affects cross-border labor mobility and has important distributive impli-cations for taxpayers and states. In con-structing these arguments, this Article introduces the concepts of “labor export neu-trality” and “labor residence neutrality” as tools for analyzing government policies that affect global labor mobility. A policy is labor export neutral if it does not distort taxpayers’ decisions about where to work. A policy is labor residence neutral if it does not distort taxpayers’ decisions about where to reside.

Keywords: labor mobility, labor taxation, international taxation, Schumacker, tax expenditures, cross-border work, OECD Model Tax Treaty, labor export neutrality, labor import neutrality, ECJ, Supreme Court, immigration, labor migration, refundable tax credits

JEL Classifications: F15, F22, H20, H24, H70, H77, K31, K34

Accepted Paper Series