Skip to main content
Log in

Nonlinear tax-induced migration: an overlooked tale

  • Original Paper
  • Published:
The Annals of Regional Science Aims and scope Submit manuscript

Abstract

The empirical literature on tax-induced migration (TIM) primarily focused on estimating the average elasticity of migration to interregional tax differentials but ignores the potential effect of the variations around this average. This paper extends the work of Moretti and Wilson (Am Econ Rev 107:1858–1903, 2017) and finds salient nonlinearity in the TIM of star scientists between 1977 and 2010. The results suggest that differences in personal income tax and research and development (R & D) tax credits between two states generate nonlinear impacts on migration; there is evidence of an important inertia range in which the differences generate little impact on migration. In contrast, the corporate income tax has approximately linear effects and investment tax credit has consistent effects only when the destination state initially has higher credits than the origin state. As different taxes or tax credits have distinctive nonlinear effects on migration, decision makers are cautioned of using average elasticities of TIM in policy making.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. Star scientists are defined as exceptional inventors that, in a given year, are at or above the 95th percentile in number of patents over the past 10 years (Moretti and Wilson 2017).

  2. Employees who live in one state but work in another only need to pay state and local taxes of his/her home state if the two states have tax reciprocity agreement.

  3. For example, Sasser (2010) modified the logistics model to investigate the relative importance of three migration drivers—labor market conditions, per capita incomes, and housing affordability over time. The logistic model in Gabriel et al. (1993) allows for testing a hypothesis of asymmetric information flow between the origin and destination states.

  4. Specification (6) of Table 2a) in Moretti and Wilson (2017) has provided the baseline regression results. It was the preferred specification among a variety of models controlling for state fixed effects, state-year fixed effects (state-specific time trends) or region-year fixed effects (region-specific time trends).

  5. Figure 4 in Moretti and Wilson (2017) show a series of bin-scatterplots of the log odds ratio against the log net-of-tax rate after demeaning the log odds ratio and the log net-of-tax rates by their within-pair and within-year sample means. They used 40 bins sorted along the x-axis, here in this paper we use 80 bins.

  6. The B-splines only illustrate the one-to-one partial relationship between outmigration and each tax, leaving the effects of other taxes out of consideration. Additionally, the choice of B-spline with three degrees of freedom is ad hoc. In contrast, generalized additive model (GAM) with smoothing spline terms does not require manual choices of degrees of freedom and simultaneously incorporates all taxes.

  7. The smoothing splines display changes of marginal effects at ± 0.04 for ATR, zero for ITC, ± 0.1 for R and D credits, and no change for CIT. Therefore, for the bin regression, we interact ATR with the indicator functions \( 1({\text{ATR}} \ge 0.04) \) and \( 1({\text{ATR}} \le -\,0.04) \), as well as CIT/ITC with \( 1({\text{CIT}}/{\text{ITC}} \ge 0) \). ITC is further interacted with \( 1({\text{ITC}} \le -\,0.02) \). R and D credit is interacted with \( 1({\text{Cred}}) \ge\,0.1 \) and \( 1({\text{Cred}} \le -\,0.1) \).

References

  • Akcigit U, Baslandze S, Stantcheva S (2016) Taxation and the international mobility of inventors. Am Econ Rev 106:2930–2981

    Article  Google Scholar 

  • Bakija J, Slemrod J (2004) Do the rich flee from high state taxes? evidence from federal estate tax returns. Working paper, National Bureau of Economic Research

  • Basile R, Lim J (2017) Nonlinearities in interregional migration behavior: evidence from the United States. Int Reg Sci Rev 40:563–589

    Article  Google Scholar 

  • Cebula RJ (1990) A brief empirical note on the Tiebout hypothesis and state income tax policies: introduction. Public Choice 67(1):87

    Article  Google Scholar 

  • Chirinko RS, Wilson DJ (2008) State investment tax incentives: a zero-sum game? J Public Econ 92:2362–2384

    Article  Google Scholar 

  • Cohen RS, Lai AE, Steindel C (2011) The effects of marginal tax rates on interstate migration in the US., New Jersey Department of the Treasury

  • Coomes PA, Hoyt WH (2008) Income taxes and the destination of movers to multistate MSAs. J Urban Econ 63:920–937

    Article  Google Scholar 

  • Gabriel SA, Justman M, Levy A (1987) Place-to-place migration in Israel: estimates of a logistic model. Reg Sci Urban Econ 17:595–606

    Article  Google Scholar 

  • Gabriel SA, Shack-Marquez J, Wascher WL (1992) Regional house-price dispersion and interregional migration. J Hous Econ 2:235–256

    Article  Google Scholar 

  • Gabriel SA, Shack-Marquez J, Wascher WL (1993) Does migration arbitrage regional labor market differentials? Reg Sci Urban Econ 23:211–233

    Article  Google Scholar 

  • Gabriel SA, Mattey JP, Wascher WL (1995) The demise of California reconsidered: Interstate migration over the economic cycle. Economic Review - Federal Reserve Bank of San Francisco, San Francisco, p 30

    Google Scholar 

  • Gius M (2011) The effect of income taxes on interstate migration: an analysis by age and race. Ann Reg Sci 46:205–218

    Article  Google Scholar 

  • Gregory PR (2013) Sorry New York times, tax flight of the rich is not a myth. Forbes, Jersey City, NJ

    Google Scholar 

  • Hsing Y (1995) A note on interstate migration and tax burdens: new evidence. J Appl Bus Res Laram 12:12

    Article  Google Scholar 

  • Hsing Y, Mixon FG Jr (1996) A regional study of net migration rates of college students. Rev Reg Stud 26:197–209

    Google Scholar 

  • James G, Witten D, Hastie T, Tibshirani R (2013) An introduction to statistical learning: with applications in R. Springer, Berlin

    Book  Google Scholar 

  • Kleven HJ, Landais C, Saez E (2013) Taxation and international migration of superstars: evidence from the european football market. Am Econ Rev Nashv 103:1892–1924

    Article  Google Scholar 

  • Kleven HJ, Landais C, Saez E, Schultz E (2014) Migration and wage effects of taxing top earners: evidence from the foreigners’ tax scheme in Denmark. Q J Econ 129:333–378

    Article  Google Scholar 

  • Moretti E, Wilson DJ (2017) The effect of state taxes on the geographical location of top earners: evidence from star scientists. Am Econ Rev 107:1858–1903

    Article  Google Scholar 

  • Sasser AC (2010) Voting with their feet: relative economic conditions and state migration patterns. Reg Sci Urban Econ 40:122–135

    Article  Google Scholar 

  • Stewart JB (2013) High taxes are not a prime reason for relocation, studies say, The New York Times

  • Zucker LG, Darby MR (2006) Movement of star scientists and engineers and high-tech firm entry. Working Paper, National Bureau of Economic Research

  • Zucker LG, Darby MR, Brewer MB (1998) Intellectual human capital and the birth of U.S. biotechnology enterprises. Am Econ Rev 88:290–306

    Google Scholar 

  • Zucker LG, Darby MR, Fong J (2011) Communitywide database designs for tracking innovation impact: COMETS, STARS and Nanobank. Working Paper, National Bureau of Economic Research

Download references

Acknowledgements

The authors would like to thank Sandy Dall’erba and Benjamin Crost for their suggestions and comments on earlier drafts. We would also like to thank Enrico Moretti and Daniel Wilson for sharing their data and analytical files. We have no relevant or material financial interests that relate to the research described in this paper.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Yizhou Zhang.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Zhang, Y., Hewings, G.J.D. Nonlinear tax-induced migration: an overlooked tale. Ann Reg Sci 62, 425–438 (2019). https://doi.org/10.1007/s00168-019-00902-5

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00168-019-00902-5

JEL Classification

Navigation