Advani Presents How Responsive Are Top Earners To Tax Rates? Today At Oxford

Arun Advani (Warwick; Google Scholar) presents Top Flight: How Responsive Are Top Earners to Tax Rates? (with Cesar Poux (London School of Economics) & Andy Summers (London School of Economics)) at Oxford today as part of its Oxford Centre for Business Taxation Seminars:

Using administrative data on the universe of UK taxpayers, we leverage major top tax rate reforms in the UK and France to evaluate how much top earners respond to tax increases by migrating. We document four main facts. First, looking across foreigners we find a migration semi-elasticity with respect to the net-of-average-tax rate of -0.2, somewhat lower than has been found for specific groups studied previously. Second, migration responses are driven by those with the highest predicted baseline emigration probability, highlighting the importance of accounting for heterogeneity. Third, there is little migration response from natives. Finally, we estimate the long term impact of tax changes on the stock of migrants among UK top earners taking a structural approach, and find that even our modest migration elasticity implies substantial stock changes in the long run.

Conclusion

• Significant migration responses of foreigners to increases in top tax rates.

• • Average emigration rate semi-elasticity of-0.2, not dissimilar to existing work.
  • For natives, negligible and not significantly different from 0.
• BUT, ave. results mask significant heterogeneity:
  • Among foreigners, response driven by the 20% with the highest ex-ante prob. of leaving.
  • Among natives, a small minority of mobile individuals react strongly to tax rates.
  • Smaller responses for longer time spent in country and larger income.
• Effect of time spent comes from people settling over time.
  • Implies even temporary shocks can have long lasting effects, as they lead people to leave before they settle and become less mobile.