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Then Only Two Wise Men Came from the East: A Reduction in the Tax Subsidy for High-Skilled Immigrants

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  • Albert Rutten

    (SEO Economisch Onderzoek)

  • Nils Verheuvel

    (SEO Economisch Onderzoek)

Abstract

Many European countries, including the Netherlands, have tax incentives to attract high-skilled immigrants. In 2019, the Netherlands has reduced the duration of the tax subsidy from eight to five years. This paper analyzes the effect of this reduction on the inflow of high-skilled immigrants in the period 2016–2022. Detailed administrative data on taxable income and the arrival dates of high-skilled immigrants are applied in a difference-in-differences strategy. The main results suggest that the inflow of high-skilled immigrants is reduced by 15.8 percent, implying a migration elasticity of 0.42. The estimates suggest that particularly high-income immigrants are responsive to a reduction of the tax subsidy, with a migration elasticity of approximately 0.6. A stylized back-of-the-envelope calculation suggests that the reduction of the tax subsidy decreases government revenue by 9 percent. This result is mainly driven by high-income immigrants who show a strong response to a decrease in the tax subsidy.

Suggested Citation

  • Albert Rutten & Nils Verheuvel, 2025. "Then Only Two Wise Men Came from the East: A Reduction in the Tax Subsidy for High-Skilled Immigrants," De Economist, Springer, vol. 173(3), pages 449-474, September.
    • Handle: RePEc:kap:decono:v:173:y:2025:i:3:d:10.1007_s10645-025-09455-9
    DOI: 10.1007/s10645-025-09455-9
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    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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