TY - JOUR
T1 - Migration and wage effects of taxing top earners
T2 - Evidence from the foreigners' tax scheme in Denmark
AU - Kleven, Henrik Jacobsen
AU - Landais, Camille
AU - Saez, Emmanuel
AU - Schultz, Esben
N1 - Funding Information:
* We thank Raj Chetty, Michael Devereux, Amy Finkelstein, Rick Hornbeck, Caroline Hoxby, Lawrence Katz, Wojciech Kopczuk, Claus Kreiner, Ilyana Kuziemko, Bentley MacLeod, Alan Manning, Jonathan Meer, James Poterba, Andrei Shleifer, three anonymous referees, and numerous seminar participants for very helpful comments and discussions. Financial support from NSF Grant SES-1156240, the Center for Equitable Growth at UC Berkeley, EPRN, and the European Tax Policy Forum is gratefully acknowledged.
PY - 2014/2
Y1 - 2014/2
N2 - This article analyzes the effects of income taxation on the international migration and earnings of top earners using a Danish preferential foreigner tax scheme and population-wide Danish administrative data. This scheme, introduced in 1991, allows new immigrants with high earnings to be taxed at a preferential flat rate for a duration of three years. We obtain two main results. First, the scheme has doubled the number of highly paid foreigners in Denmark relative to slightly less paid-and therefore ineligible-foreigners. This translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners, between 1.5 and 2. Second, we find compelling evidence of a negative effect of the scheme-induced reduction in the average tax rate on pretax earnings of foreign migrants at the individual level. This finding can be rationalized by a matching frictions model with wage bargaining where there is a gap between pay and marginal productivity.
AB - This article analyzes the effects of income taxation on the international migration and earnings of top earners using a Danish preferential foreigner tax scheme and population-wide Danish administrative data. This scheme, introduced in 1991, allows new immigrants with high earnings to be taxed at a preferential flat rate for a duration of three years. We obtain two main results. First, the scheme has doubled the number of highly paid foreigners in Denmark relative to slightly less paid-and therefore ineligible-foreigners. This translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners, between 1.5 and 2. Second, we find compelling evidence of a negative effect of the scheme-induced reduction in the average tax rate on pretax earnings of foreign migrants at the individual level. This finding can be rationalized by a matching frictions model with wage bargaining where there is a gap between pay and marginal productivity.
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U2 - 10.1093/qje/qjt033
DO - 10.1093/qje/qjt033
M3 - Article
AN - SCOPUS:84892510372
SN - 0033-5533
VL - 129
SP - 333
EP - 378
JO - Quarterly Journal of Economics
JF - Quarterly Journal of Economics
IS - 1
M1 - qjt033
ER -