Income Taxes and Mobility of the Rich: Evidence from Foreign Households in Switzerland

We provide evidence on income tax-induced migration of foreign high-income households in Switzerland using administrative data on the universe of US and UK households in Switzerland. The world-wide income tax system of the US effectively isolates high-income US households living in Switzerland from the Swiss income tax scheme. This allows us to separate income tax from other sorting effects by comparing the location choices of US households with the ones of UK households. Using data on the universe of US and UK households in Switzerland, we find that around 3 out of 5 UK households at the top 1% of the income distribution locate in local tax heavens. For this group, tax-induced income sorting results in a reduction of the average income tax rate by almost 5 percentage points. This is equivalent to forgone income tax payments of around CHF 105,000 per household and year.