Taxes and International Mobility of Talent

By Saez, Emmanuel | NBER Reporter, Summer 2014 | Go to article overview

Taxes and International Mobility of Talent


Saez, Emmanuel, NBER Reporter


Tax-induced international mobility of talent is a controversial public policy issue, especially when tax rates differ substantially across countries and migration barriers are low as in the case of the European Union. High top tax rates may induce top earners to migrate to countries where the tax burden is lower, thereby limiting the redistributive power of governments by creating tax competition. Such concerns have featured prominently in recent tax policy debates in Europe, including the introduction of the 50 percent top marginal tax rate in the United Kingdom in 2010 (reduced to 45 percent in 2013) and a temporary 75 percent top marginal tax rate on labor income in France in 2013-14. Furthermore, the introduction in many European countries of preferential tax schemes for high-skilled foreign immigrants represents prima facie evidence of tax competition in internationally integrated labor markets. Preferential tax schemes for high-skilled foreign workers have been introduced in Belgium, Denmark, Finland, the Netherlands, Portugal, Spain, Sweden, and Switzerland. A summary of all such existing schemes in OECD countries is provided by OECD. (1) The key empirical question is how international migration by high-skilled workers responds to tax differentials across countries.

An enormous body of empirical literature has studied the effect of taxation on labor supply, earnings, and reported income for tax purposes within countries. In our 2009 study, Joel Slemrod, Seth Giertz, and I review the large recent literature on the effects of marginal tax rates on reported income. (2) However, there is almost no empirical work on the effect of taxation on the mobility of workers across countries. In two recent studies, we investigate the importance of tax-induced migration effects among top earners.

Evidence from the European Football Market

In our 2010 paper, Henrik Kleven, Camille Landais, and I study whether top tax rates affect the international mobility of football players in Europe. (3) International mobility among football players has recently been the subject of heated discussion in the United Kingdom in connection with the increase in the top marginal tax rate from 40 percent to 50 percent. Supposedly, the star player Cristiano Ronaldo moved from Manchester United to Real Madrid in 2009 partly to avoid the announced 50 percent tax in the United Kingdom and to benefit instead from the so-called "Beckham Law" in Spain, a preferential tax scheme offering a flat tax of 24 percent to foreign residents. The nickname for this tax scheme was coined a few years earlier when another star player, David Beckham, also moved from Manchester United to Real Madrid to benefit from the scheme. Arsene Wenger, the emblematic manager of Arsenal Football Club, commented on the U.K. tax reform by saying that "with the new taxation system, (...), the domination of the Premier League will go, that is for sure." (4)

The football market offers three important advantages for the study of mobility. First, international mobility has been very common in the professional football market since the Bosman ruling by the European Court of Justice in 1995 that lifted pre-existing restrictions on player mobility. In the absence of such restrictions, cross-border mobility is higher in the football market than in most other markets owing to the fact that the game is the same everywhere and involves very little country-specific human capital. This makes the football market a valuable laboratory to begin the study of tax-induced mobility across countries. Football players may provide an upper bound on the migration response to taxation for the labor market as a whole. Obtaining an upper bound is crucial for gauging the potential importance of this policy question, especially in the long run as labor markets become more international and country-specific human capital declines in importance.

Second, extensive data on the careers and mobility of professional football players can be gathered for most countries over long time periods. …

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