Behavioral Responses to State Income Taxation of High Earners: Evidence from California
American Economic Journal: Economic Policy
vol. 16,
no. 1, February 2024
(pp. 34-86)
Abstract
Using administrative data, we analyze the response to Proposition 30, a 2012 measure that increased California marginal tax rates by up to 3 percentage points for high-income households. Relative to baseline departure rates, an additional 0.8 percent of the residential tax base that landed in the top bracket left California in 2013. Using matched out-of-state taxpayers as controls reveals an income elasticity with respect to the marginal net-of-tax rate of 2.5–3.2 for high earners who stayed. These responses eroded 45.2 percent of state windfall tax revenues within the first year and 60.9 percent within 2 years, driven largely by the intensive margin.Citation
Rauh, Joshua, and Ryan Shyu. 2024. "Behavioral Responses to State Income Taxation of High Earners: Evidence from California." American Economic Journal: Economic Policy, 16 (1): 34-86. DOI: 10.1257/pol.20200500Additional Materials
JEL Classification
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H31 Fiscal Policies and Behavior of Economic Agents: Household
- H71 State and Local Taxation, Subsidies, and Revenue
- H73 State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects
- J61 Geographic Labor Mobility; Immigrant Workers
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
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