Top flight? Behaviour and impacts of top earners

This research is fundamentally concerned with understanding:
1. How many top earners would leave the country if the top rate of income tax were increased?
2. Do the companies that top earners work for help them reduce their tax bills?
3. What costs and benefits do top earners have for the rest of society: how many jobs and how much investment do they create? how much do they drive up house prices by buying additional homes?

To answer these questions I will use data from HMRC, the UK tax agency. I have access to anonymised versions of the tax records of all top earners for more than twenty years, so I can track how people responded to past tax changes. Looking at how many more people leave when top tax rates increase in the UK, and how many more arrive from other countries when those countries' top tax rates rise, I can measure how responsive people are to tax changes. I can also look at what types of people are most likely to respond. Understanding this is crucial for knowing how much money the government will actually get in tax if they increase the top rate of income tax.

By linking individual tax records to the records of their employers, I can see if top earning employees working for the same firm are likely to adopt the same kinds of tax avoidance strategies. As new opportunities for avoidance become available, and old ones are shut down, I can study if people working at the same firm are more likely to use the same kinds of 'loopholes'. I can also see if these effects are more common in particular industries and in certain types of companies e.g. multinationals. This all matters because if companies are involved in planning for their employees, it suggests a new avenue for HMRC to target interventions to shut down the use of these behaviours: talk to employers.

Using these same data I can also look for the effects of top employees on the hiring and investment of the companies they work for or own. The difficulty of studying this normally would be that, for example, a company that is doing badly might have to let go of some top earning management, and soon after might make redundant lots of people on regular incomes. But in this case seeing top earners leave and then lots of other job losses does not tell us that losing top earners causes the other job losses. To get around this, I will make use of information on how people respond to tax reforms, learned in answering question 1. Since I learned there what types of individuals respond to tax increases, I can compare what happens to similar companies but where one employs more people who are likely to respond to the tax change than other. I expect to see no difference before the tax reform, and any subsequent differences in employment and investment are driven by the reform and impact it had on driving some top earners away. A similar idea can be used to look at the effect on local area house prices.