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The Influence of Labour Taxes on the Migration of Skilled Workers

  • Peter Egger
  • Doina Maria Radulescu

Abstract This paper investigates empirically the role of taxes on labour for the stock of expatriates and the migration flows of skilled workers. Given the increasing mobility of labour, especially of high-skilled people and expatriates, it is interesting to see to what extent labour income taxes and social security contributions determine migration flows. We collect data on personal income tax profiles for 49 economies and the year 2002. In particular, we determine the component of labour taxes which is borne by employers and that which is borne by employees, following the OECD's Taxing Wages Approach. For the latter, we calculate the progressivity of personal income tax rates between the average wage and five times the average wage. This may be interpreted as the tax progression which is relevant for well-paid workers. Then, we use the personal income tax variables to estimate their effect on bilateral stocks of expatriates into OECD countries and the migration of skilled workers into these countries. Personal income tax rates turn out to have a robust negative effect on cross-border flows of skilled workers in the OECD. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 32 (2009)
Issue (Month): 9 (09)
Pages: 1365-1379

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Handle: RePEc:bla:worlde:v:32:y:2009:i:9:p:1365-1379
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  1. Grogger, Jeffrey & Hanson, Gordon H., 2011. "Income maximization and the selection and sorting of international migrants," Journal of Development Economics, Elsevier, vol. 95(1), pages 42-57, May.
  2. Thomas Liebig & Alfonso Sousa-Poza, 2004. "Migration, Self-Selection and Income Inequality: An International Analysis," Kyklos, Wiley Blackwell, vol. 57(1), pages 125-146, 02.
  3. Daniel Chiquiar & Gordon H. Hanson, 2005. "International Migration, Self-Selection, and the Distribution of Wages: Evidence from Mexico and the United States," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 239-281, April.
  4. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
  5. Feld, Lars P. & Kirchgassner, Gebhard, 2001. "Income tax competition at the State and Local Level in Switzerland," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 181-213, April.
  6. Christopher Heady, 2003. "The "Taxing Wages" Approach to Measuring the Tax Burden on Labour," CESifo Working Paper Series 967, CESifo Group Munich.
  7. Kirchgassner, Gebhard & Pommerehne, Werner W., 1996. "Tax harmonization and tax competition in the European Union: Lessons from Switzerland," Journal of Public Economics, Elsevier, vol. 60(3), pages 351-371, June.
  8. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
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