Mobility Responses to the Establishment of a Residential Tax Haven: Evidence From Switzerland

Martínez, Isabel Z.
Authors registered in the RePEc Author Service: Isabel Z. Martínez

No 16627, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I analyze mobility responses to a tax reform that established the Swiss canton of Obwalden as a tax haven in 2006. The reform, which included a regressive income tax schedule, was explicitly aimed at attracting the top 1%. Difference-in-Differences (DiD) estimations comparing Obwalden to all other cantons confirm that the reform successfully attracted high-income taxpayers: by 2016, the share of top earners in the canton had doubled, and average income per taxpayer was 16% higher relative to 2005. Based on individual tax return data, I estimate the mobility elasticity with a two-stage least squares (2SLS) approach, which isolates the identifying variation in the tax rate stemming from the 2006 reform only. I find a large elasticity of the stock of high-income taxpayers of 1.5–2 with respect to the net-of- average-tax rate. The corresponding flow elasticity is 7.2. Despite these large behavioral responses, the reform did not increase revenue per capita in the canton. Finally, I find small positive effects on local employment. However, in-movers with high incomes were not more likely to also work in the canton, and I cannot rule out that employment effects were driven by the simultaneous reduction in corporate income taxes.

Keywords: Mobility; Personal income tax; Local taxes; Tax competition; Regressive income tax (search for similar items in EconPapers)
JEL-codes: H24 H31 H71 H73 R23 (search for similar items in EconPapers)
Date: 2022-04
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Journal Article: Mobility responses to the establishment of a residential tax haven: Evidence from Switzerland (2022)
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