American Economic Journal: Applied Economics, Vol. 15, No. 2, April 2023, Pp. 218-52
Emigration of young, highly educated individuals may deprive origin countries of entrepreneurs. We identify exogenous variation in emigration from Italy by interacting past diaspora networks and current economic pull factors in destination countries. We find that a one standard deviation increase in the emigration rate generates a 4.8% decline in firms creation in the local labor market of origin. An accounting exercise decomposes the estimated effect into four components: subtraction of individuals with average entrepreneurial propensity, selection of young and college-educated among emigrants, negative spillovers on firm creation and selection on unobservable characteristics positively associated with entrepreneurship.
Brain drain is a growing concern for many countries experiencing large emigration rates of their highly educated citizens. While several European countries have designed preferential tax schemes to attract high-skilled individuals, there is limited empirical evidence on the effectiveness of fiscal incentives in a context of brain drain, and on migration responses beyond top earners. In this paper we investigate the effects of the Italian 2010 tax scheme “Controesodo”, which granted a generous income tax exemption to young high-skilled expatriates who relocate to Italy. Eligibility requires a college degree as well as being born in 1969 or later, which creates suitable quasi-experimental conditions to identify the effect of tax incentives. Using a Triple Difference design and administrative data on return migration, we find that eligible individuals are 27% more likely to move back to Italy post-reform. Additionally, using social security data from the main origin country of Italian returnees (Germany), we uncover significant effects throughout the wage distribution, suggesting that mobility in response to tax incentives is a broad phenomenon not limited to top earners. A cost-benefit analysis reveals that the direct fiscal impact of the reform – a lower bound of the total effect in the presence of human capital externalities – is marginally positive, by virtue of the tax scheme targeting young high-skilled individuals.
Do Local Tax Differentials Affect Internal Migration? (draft available upon request)
There is increasing evidence on the geographical mobility of high-earners in response to tax differentials, both across and within countries. Still, an open question is the extent to which these mobility responses reflect a true movement of human capital or merely a relocation of tax bases for fiscal purposes. In this paper I investigate internal migration between Italian municipalities in response to changes in local tax differentials. Using restricted-access administrative data on bilateral transfers of residence between municipalities, and exploiting variation in local tax rates between location pairs over time, I document three findings. First, changes in local income tax differentials induce transfers of residence towards low-tax municipalities, confirming findings of previous work but at a finer geographical level. Second, individuals move towards locations with higher property tax rates after a reform in 2009 exempted primary residences from property taxation, consistent with homeowners transferring their fiscal residence to high-tax municipalities to take advantage of the exemption. Last, preliminary results using a novel administrative data source, linking individuals' job locations to their residence, point towards no effect of changes in local tax differentials on work- and study-related transfers between municipalities. These findings could have important policy implications, as they would inform to what extent raising local taxes results in losing human capital or only tax revenue.
Work in progress
Firm-level Effects of Tax-Induced High-Skilled Migration (with Jacopo Bassetto)