Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms

Abstract

We quantify the importance of mobility as a response to top tax rate changes in a country where migration is relatively low. A recent Spanish tax reform granted states the authority to set income tax rates for the first time. This Spanish tax reform resulted in substantial tax differences across states for high-income tax payers. To study the effect of these tax changes, we use individual-level information from Social Security records over a period of one decade. Conditional on moving, taxes have a significant effect on the location choice. A one percent increase in the net of tax rate for a region relative to others increases the probability of moving to that region by 1.5 percentage points.