Migration and Tax Policy: Evidence from Finnish Full Population Data

Abstract

While evidence on the impact of taxation on the international migration of certain special groups of workers has expanded, evidence on the links between taxes and migration of the general population is extremely limited. We aim to fill this gap by estimating the impact of taxation on the migration decisions of the entire working population in a high-tax source country, Finland. We find that the average domestic elasticity of migration with respect to the domestic tax rate is very small (around 0.001). This holds for various occupational and income groups of interest. We also provide a first empirical implementation of the theoretical results of Lehmann et al. (2014), who show that if a fully nonlinear income tax schedule at the top is used, the key sufficient statistic for the optimal tax is a semi-elasticity of migration. Our estimates indicate that the migration responses increase for top earners, but remain very small, at least up to the top per mille of income earners.