Abstract
This paper examines the trade-offs policymakers face when imposing out-migration taxes to prevent tax flight. Exploiting an increase in the wealth tax rate in Norway at the top of the wealth distribution, I document significant migration responses. The out-migration rate of affected households increased from 0.2% in the pre-period to more than 2% in the year of the reform. Out-migration not only erodes the tax base, but 40% of out-migrating households are firm owners. Firms of out-migrating owners experience, on average, a 12.6% decrease in firm revenues compared with firms whose owners remain. To analyze the aggregate effects of the reform and the effectiveness of out-migration taxes, I develop a dynamic equilibrium model where heterogeneous entrepreneurs make forward-looking savings and location choices. Entrepreneurs who operate their firm in a different location than their country of residence may incur a haircut to their productivity. Leveraging quasi-experimental evidence from the reform to estimate the key model parameters, my model reveals that the wealth tax reform reduces aggregate output by 1.3% in the long-run. Introducing a tax on the market value of the firm upon out-migration curbs tax flight, especially among more productive entrepreneurs, and increases aggregate output.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.