Doctoral Dissertation Research in Economics: Behavioral Responses to Taxation of Foreign Personal Income

This is a doctoral dissertation research improvement grant. The coPI will use a unique data set to quantify the behavioral responses of high-income individuals to changes in the taxation of foreign personal income and estimate the extent to which firms engage in tax planning on behalf of their employees. Many countries offer substantial tax incentives to attract high income foreigners, on the assumption that these new residents will boost local economic activity and generate additional fiscal revenues because they consume, work, and invest where they live. However, multinational firms may implement tax planning strategies to minimize their employees' tax bills. The project will use a large administrative data set to understand the behavioral responses of both firms and their employees to changes in tax policies. The project will help quantify the benefits and costs of tax incentives offered to attract high income individuals. The results will help inform policy debates and will demonstrate how large administrative data sets can offer useful information for tax policies.

Recent empirical research shows that certain groups of individuals are highly responsive to tax differentials in their migration decisions. However, it is not yet clear what role firms play in migration decisions. The consequences of these policies on government revenues and the spillover effects on local economies are also not yet clear. The project will characterize the behavioral response to taxation of foreign personal income and estimate the extent to which firms engage in tax planning on behalf of their employees. The analysis exploits quasi-experimental variation generated by a series of reforms to a tax break for non-domiciled individuals in the UK. The policy change gives us a unique data source for answering new research questions. While previous research focused on taxation of domestic source income, this work focuses instead on foreign source income and the possible use of tax planning strategies by multinational firms.

This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.