Research seminar: Freedom of Movement, Taxation and Job Mobility in Europe

Davud Rostam-Afschar. Assistant Professor (AR), Universitaet Hohenheim

http://www.rostam-afschar.de

Freedom of Movement, Taxation and Job Mobility in Europe (joint work with Kurt Schmidheiny)

Abstract: This paper analyzes the effects of i) top personal income tax rates, ii) top corporate income tax rates, and iii) movement costs on international migration. We provide evidence based on income tax events for the 28 EU Member countries, Norway, Iceland, and Switzerland from 1995-2017. We compare effects of taxation to those of migration costs identified through events in intercountry mobility barriers. While large tax cuts in destination countries increase migration, we estimate the long-run tax elasticity of mobility to be around 1 for personal income taxes and not significantly different from zero for corporate income taxes. In contrast, adoption of freedom of movement for workers increases the migration probability by more than 50% the long run. We show that tax incentives matter in interaction with lower migration costs but less on their own. This suggests that regulation of professionals is much more important than taxation when individuals decide where to locate and that the massive tax incentives in Eastern European countries could not revert the population drain.