Taxes and international mobility of talent.

• Author: Saez, Emmanuel
• Position: Research Summaries

Tax-induced international mobility of talent is a controversial public policy issue, especially when tax rates differ substantially across countries and migration barriers are low as in the case of the European Union. High top tax rates may induce top earners to migrate to countries where the tax burden is lower, thereby limiting the redistributive power of governments by creating tax competition. Such concerns have featured prominently in recent tax policy debates in Europe, including the introduction of the 50 percent top marginal tax rate in the United Kingdom in 2010 (reduced to 45 percent in 2013) and a temporary 75 percent top marginal tax rate on labor income in France in 2013-14. Furthermore, the introduction in many European countries of preferential tax schemes for high-skilled foreign immigrants represents prima facie evidence of tax competition in internationally integrated labor markets. Preferential tax schemes for high-skilled foreign workers have been introduced in Belgium, Denmark, Finland, the Netherlands, Portugal, Spain, Sweden, and Switzerland. A summary of all such existing schemes in OECD countries is provided by OECD. (1) The key empirical question is how international migration by high-skilled workers responds to tax differentials across countries.

An enormous body of empirical literature has studied the effect of taxation on labor supply, earnings, and reported income for tax purposes within countries. In our 2009 study, Joel Slemrod, Seth Giertz, and I review the large recent literature on the effects of marginal tax rates on reported income. (2) However, there is almost no empirical work on the effect of taxation on the mobility of workers across countries. In two recent studies, we investigate the importance of tax-induced migration effects among top earners.

Evidence from the European Football Market

In our 2010 paper, Henrik Kleven, Camille Landais, and I study whether top tax rates affect the international mobility of football players in Europe. (3) International mobility among football players has recently been the subject of heated discussion in the United Kingdom in connection with the increase in the top marginal tax rate from 40 percent to 50 percent. Supposedly, the star player Cristiano Ronaldo moved from Manchester United to Real Madrid in 2009 partly to avoid the announced 50 percent tax in the United Kingdom and to benefit instead from the so-called "Beckham Law" in Spain, a preferential tax scheme...