Mathilde Munoz*

In an open economy and in the absence of tax cooperation, the ability of governments to redistribute can be reduced by the threat of emigration of their richest taxpayers. Most top income reforms are thus usually followed by fierce debates on the expected emigration of top earners, particularly in Europe, where institutional barriers to internal migration are low while top tax rates remain very heterogeneous. Do top earners choose their tax residency according to tax rates, and do these choices have implications for redistribution?

In this article, Mathilde Muñoz studies for the first time the effect of labour taxes on the intra-European migration of highly paid employees (1). This research exploits a novel database that allows her to track individuals’ location choices at different levels of the income distribution for a representative sample of the population of 21 European countries. To quantify the migration responses to tax policies, the author analyses the effects of top marginal tax rates reforms on the location choices of top earners, using the location choices of individuals with lower incomes as a control group. The empirical analysis studies how, for each period, the probability that an individual chooses to become a resident in a country, including the country in which they are already located, changes when the top marginal tax rate in that country changes. The location choices of European taxpayers in the top 10% of the wage distribution are systematically affected by top marginal tax rates, while those of employees with lower incomes are not. The findings indicate that an increase in the top marginal tax rate of 10 percentage points would reduce the number of high-income taxpayers in a country by 2% on average. Top earners migration responses to top tax rates are very heterogeneous: in particular, foreigners exhibit a higher sensitivity to tax reforms. Highly paid employees working in the finance and insurance industries are also more likely to take advantage of lower tax rates when choosing where to locate, relative to workers in more geographically constrained professions such as public administration or defence.

These results have important implications for public policy. First, while some top earners do take top marginal tax rates into account when choosing where to locate, the scale of this phenomenon does not justify lowering top income tax rates in any of the European member states. Using a simple optimal taxation model, the study shows that reducing current top income tax rates would not attract enough top earners, nor slow down the rate of emigration enough, to compensate the tax revenue losses generated by such tax cuts. However, the migration responses of high earners to income taxes can create incentives for countries to introduce low rates targeted exclusively at new residents, leading to beggar-thy-neighbour policies in order to attract highly mobile top earners. In Europe, close to half of the member states have already introduced preferential tax regimes for rich immigrants, such as the impatriates tax scheme in France. Finally, the study establishes that, while moderate, top earners migration responses to taxes are sufficiently high to limit optimal top tax rates chosen by governments, which highlights the negative effects of a lack of fiscal cooperation on the redistributive capacity of tax systems in Europe.

(1) For most individuals in the top 10% of wage distribution, income comes from labour income, therefore their location choices are mostly explained by labour – rather than capital – taxation.



Original title of the article: Do European Top Earners React to Labour Taxation Through Migration?

Published in: PSE working paper n°2021-35

Available at

This work has been awarded the 2019 International Institute of Public Finance (IIPF) Young Economist Award

* PhD Student (PSE, EHESS)


This synthesis has been published in the June edition of “5 papers… in 5 minutes!” dedicated to PhD students work.

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