Higher taxes on high earners drive them to move or shift income

⚠ Disputed

Confidence: Low

Off by default

Shape: Delayed

When taxes on high earners are raised, some of them move abroad, don't return, or shift income to lower-taxed forms, so Finland collects less than the static estimate. A cut works the other way.

Disputed assumption – may not work this way in reality

Economists disagree whether this effect works, and how strongly.

Research shows that some high earners – especially mobile top talent and foreigners – respond to taxes by moving. Nordic studies find, however, that the effect is small for most high earners, because work, family and language also decide where people live. Estimates range from minor to substantial, and part of the effect comes from tax planning rather than moving.

Of every 100 euros that a change to “Income taxes of high earners (top decile)” saves or brings in, 35 € is lost as revenue on the line “Personal income tax”, starting after 1 yr and building up to its full size over 4 yrs. (The other way round if the change adds spending or cuts taxes.)

E(t) = s × T(t) × min(1, max(0, (n − delay + 1) / build-up))

The default is an estimate; to be refined from Finnish migration and taxation research.

Sources: Kleven, Landais, Saez & Schultz (2014): migration and wage effects of taxing top earners, evidence from Denmark; Saez, Slemrod & Giertz (2012): the elasticity of taxable income – a review

How the effect builds up over time

Share of the change's own effect on the balance, year by year while the change continues: −15% means 15% of a saving comes back as cost (or 15% of extra revenue is lost). With the default values.

You can switch the effect on or off and adjust its assumptions in the simulator under Cause-and-effect chains.