Behavioral Responses to State Income Taxation of High Earners: Evidence from California

Joshua Rauh and Ryan Shyu

American Economic Journal: Economic Policy, 2024, vol. 16, issue 1, 34-86

Abstract: Using administrative data, we analyze the response to Proposition 30, a 2012 measure that increased California marginal tax rates by up to 3 percentage points for high-income households. Relative to baseline departure rates, an additional 0.8 percent of the residential tax base that landed in the top bracket left California in 2013. Using matched out-of-state taxpayers as controls reveals an income elasticity with respect to the marginal net-of-tax rate of 2.5–3.2 for high earners who stayed. These responses eroded 45.2 percent of state windfall tax revenues within the first year and 60.9 percent within 2 years, driven largely by the intensive margin.

JEL-codes: D91 H24 H31 H71 H73 J61 R23 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/pol.20200500

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