Dirk Foremny and David Agrawal analyse the mobility caused by the tax competition in the latest Info IEB

IEB researcher Dirk Foremny and researcher David R. Agrawal from the University of Kentucky and CESifo are the authors of the latest Info IEB entitled “The Effect of Regional Taxes on the Mobility of Top Income Taxpayers”, which is based on the main findings from their study ‘Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms’.

The report analyses how the differences in the tax rates set by the Spanish autonomous communities influence the mobility of high-income taxpayers who would choose their place of residence in areas with more favourable fiscal conditions. According to the study, in the case of the top 1% high-income earners, a 0.75 percentage point differential in the average tax rate between Madrid and Catalonia increases the probability by 2.25 percentage points that a high-income individual would change residence, to where income tax rates would be lower.

Nevertheless, the study emphasises that this strategy does not necessarily gain more revenue for these regions that lower their taxes. The effect of this tax-induced mobility of high-income earners is generally weaker than mechanical effect of having more tax revenue from the simple fact of having a higher tax rate.