Behavioral Responses to State Income Taxation of High Earners: Evidence from California

80 Pages Posted: 7 Oct 2019 Last revised: 1 Jul 2021

See all articles by Joshua D. Rauh

Joshua D. Rauh

Stanford Graduate School of Business; Hoover Institution; National Bureau of Economic Research (NBER)

Ryan Shyu

Independent

Date Written: October 2019

Abstract

Using administrative income tax data, we analyze the response to Proposition 30, a 2012 ballot measure that increased California marginal tax rates by up to 3 percentage points for high-income households. Relative to baseline rates of departure for their income levels, an additional 0.8% 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 together eroded 45.2% of state windfall tax revenues within the first year and 60.9% within two years, with the extensive margin accounting for 9.5% of this total.

Suggested Citation

Rauh, Joshua D. and Shyu, Ryan, Behavioral Responses to State Income Taxation of High Earners: Evidence from California (October 2019). NBER Working Paper No. w26349, Available at SSRN: https://ssrn.com/abstract=3465366

Joshua D. Rauh (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Hoover Institution ( email )

Stanford, CA 94305-6010
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ryan Shyu

Independent ( email )

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