Income Taxes and the Residential Mobility of Top Income Earners: Evidence from US and UK Households in Switzerland

• In Event: Cross-Border Shopping and Tax Induced Mobility

Abstract

We provide quasi-experimental evidence on the income tax-induced residential mobility of foreign high-income households living in Switzerland by exploiting the differential tax treatment of UK and US households. While the two groups are similar in terms of non-tax sorting preferences, US households are effectively insulated from Swiss income taxation due to the US world-wide income tax system. Thus, they provide the control group for the UK households, our treatment group.
Comparing the residential choices of the two groups within a 45-minutes commuting zone of Zurich, we robustly find a residential location elasticity with respect to the net-of-tax rate of around eight. This estimate captures the `pure' income tax effect on residential choice, not being downward biased by non-tax location incentives (that positively correlate with income taxes) and by coordination costs between job and residential choices, for instance.

Authors

• Michael Stimmelmayr, University of Bath

• Marko Koethenbuerger, ETH Zurich (Swiss Federal Institute of Technology in Zurich)