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

XREAP 2018-09

87 Pages Posted: 5 Dec 2018

See all articles by David R. Agrawal

David R. Agrawal

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

Dirk Foremny

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

Multiple version iconThere are 4 versions of this paper

Date Written: April 9, 2018

Abstract

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 outflow of migration.

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

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

Suggested Citation

Agrawal, David Robert and Foremny, Dirk, Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms (April 9, 2018). XREAP 2018-09. Available at SSRN: https://ssrn.com/abstract=3281544 or http://dx.doi.org/10.2139/ssrn.3281544

David Robert 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/

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

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 - Institut d'Economia de Barcelona (IEB) ( email )

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

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

Poschinger Str. 5
Munich, DE-81679
Germany

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