The International Migration of Superstars
The recent tax hikes in France to a top marginal rate of 75% have reignited the debate over the mobility of high earners. High taxes levied on high earners create an incentive to move to a jurisdiction that is more welcoming – in other words, money walks. Of course, mobility is the highest for high-skilled workers and superstar athletes; the very people who are often singled out by high tax rates are also the most mobile. A new study, “Taxation and International Migration of Superstars: Evidence from the European Football Market” shows conclusive evidence of this mobility.
The study focuses on wealth migration in Europe and finds a huge impact of taxes on the mobility of top athletes. By looking at publicly available data on the earnings of top soccer players in Europe and the tax rates in various countries, researchers Henrik Kleven (LSE), Camille Landais (Stanford), and Emmanuel Saez (Berkeley) found a very large impact of tax changes on overall player mobility. Because tax rates vary dramatically across different countries in Europe, they provide a data-rich environment for research. In addition, changes in tax policies over time created a quasi-experiment allowing for the identification of causation. The study finds a strong and negative impact of taxation on the mobility of players amongst countries.
When Spain introduced preferential tax treatment for foreign players (the so-called Beckham Law passed in 1995 and made retroactive for 1994), the proportion of foreign players in the Spanish league rose dramatically. Furthermore, the study found that low-tax countries were able to significantly improve their soccer clubs’ performances after an international ruling that freed up the movement of players between clubs, suggesting that top talent migrated to low tax jurisdictions. Finally, the authors analyzed the experience of Denmark, which introduced a preferential tax treatment for high-income foreigners and found further evidence of tax-induced migration.
Money goes where it’s most welcome, as is evident from Europe’s experience. Progressive high taxes that are meant to target high earners often backfire and drive out the most productive and talented workers. This excellent study is yet another piece of evidence that progressive taxation in the name of fairness is a feel-good but do-no-good policy – instead of redistributing income, it redistributes people.