Migration and wage effects of taxing top earners: Evidence from the foreigners' tax scheme in Denmark

Henrik Jacobsen Kleven, Camille Landais, Emmanuel Saez, Esben Schultz

Research output: Contribution to journalArticlepeer-review

113 Scopus citations

Abstract

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.

Original languageEnglish (US)
Article numberqjt033
Pages (from-to)333-378
Number of pages46
JournalQuarterly Journal of Economics
Volume129
Issue number1
DOIs
StatePublished - Feb 2014
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Migration and wage effects of taxing top earners: Evidence from the foreigners' tax scheme in Denmark'. Together they form a unique fingerprint.

Cite this