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

Joshua Rauh, Ryan J. Shyu

NBER Working Paper No. 26349
Issued in October 2019, Revised in May 2021
NBER Program(s):Public Economics

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.

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Document Object Identifier (DOI): 10.3386/w26349