The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists

We quantify how sensitive is migration by star scientist to changes in personal and business tax differentials across states. We uncover large, stable, and precisely estimated effects of personal and corporate taxes on star scientists’ migration patterns. The long run elasticity of mobility relative to taxes is 1.8 for personal income taxes, 1.9 for state corporate income tax and -1.7 for the investment tax credit. While there are many other factors that drive when innovative individual and innovative companies decide to locate, there are enough firms and workers on the margin that state taxes matter. We are thankful for very helpful comments received from the editor, four referees, and seminar participants at Barcelona GSE, Berkeley, Federal Reserve Bank of San Francisco, IZA, National Tax Association, New York Fed, Stanford GSB, and the University of Hawaii, and also from discussions by Jorge De La Roca, Alex Gelber, Juan Carlos Suárez Serrato and Danny Yagan. Yifan Cao provided excellent research assistance. Moretti gratefully acknowledges financial support from Microsoft. The views expressed in the paper represent those of the authors and do not necessarily represent the views of the Federal Reserve Bank of San Francisco or the Federal Reserve System.