Taxes on International Students: Demand and Supply Response for Post-Graduation Foreign Workers on Optional Practical Training

The US government has proposed various taxes on high-skill immigration. The effects of such taxes hinge on price elasticities of demand and supply that the literature has rarely measured. I estimate key elasticities to evaluate a $100,000 tax on Optional Practical Training (OPT) work permits for international graduates of US universities, the largest single channel of high-skill immigration to the US. Depending on the tax's incidence, evaluation requires the price elasticity of demand for US degrees with the OPT option, of universities' supply of OPT placements, or of employers' demand for OPT workers. In all incidence scenarios, OPT starts at a given level of international enrollment fall by roughly a third or more, and by four fifths under university or employer incidence in the central scenarios. The decline in OPT opportunities would cut international enrollment, costing universities hundreds of millions to over four billion dollars a year in net margin, before any compounding with taxes on work visas such as the H-1B. The need for better estimates will grow with the prevalence of immigration taxes.