Income Taxes and the Residential Mobility of the Rich: Evidence from US and UK Households in Switzerland
joint with Marko Koethenbuerger, Christian Stettler, and Michael Stimmelmayr
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. Comparing the residential choices of the two groups within a one-hour 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.