Higher tax rates can lead to brain drain

By Charles Lammam & Hugh MacIntyre of The Fraser Institute. Excerpt:

"For example, a Statistics Canada study found that Canadian emigrants to the U.S. in the 1990s were over-represented among the well-educated, upper income earners, and prime working age population (ages 25 to 44). It also found that, from 1990 to 1997, more Canadian knowledge-based workers (including physicians, engineers, and natural scientists) moved to the United States than the other way around. Most notably, for every American physician that moved to Canada, approximately 19 Canadian physicians moved to the U.S.

There are, of course, a number of reasons why Canadians move to the U.S. But research suggests that higher taxes play an important role, particularly for highly skilled workers. A study published by the influential academic journal Canadian Public Policy estimated that emigration to the U.S. would have been dramatically lower from 1995 to 2001 if Canada’s average total tax rate was equal to the U.S. Meanwhile, a paper published by the Institute for Research on Public Policy found that, from 1992 to 1996, Canadians who had the most to gain from higher income or tax savings by moving to the U.S. were more likely to do so.

International research also shows that taxes influence the mobility decision of highly skilled workers. An innovative study published in the prestigious American Economic Review found that the average and top (marginal) personal tax rates, as well as social security tax rates, play a statistically significant role in attracting foreign professional soccer players to top leagues in 14 Western European countries. The effect is particularly strong for high-quality players, defined as players who had been selected for national teams at least once in their career.

A more recent study, this one published by the National Bureau of Economic Research, used a similar method of tracking migration among a specific set of skilled workers. Specifically, the authors looked at “superstar” inventors, measured by patent citation data in eight countries (including Canada and the U.S.) from 1977 to 2000. The study found that the international migration of superstar inventors is significantly influenced by the effective top marginal tax rate."