Taxation, ethnic ties, and the location choice of highly-skilled immigrants by Thomas Liebig* and Alfonso Sousa-Poza* * Department of Economics and Research Institute for Labour Economics and Labour Law, University of St. Gallen. Address: Research Institute for Labour Economics and Labour Law, Guisanstrasse 92, CH-9010 St. Gallen, Switzerland. Corresponding author: Thomas Liebig, e-mail:
[email protected], tel. +41-71-224 2809. Parts of this paper are included in a research project which Thomas Liebig has conducted as a consultant for the OECD's International Migration Division. The authors are indebted to Isabelle Joumard, Patrick Puhani, Christoph Schaltegger, Kurt Schmidheiny, Emil Walter-Busch and Rainer Winkelmann for valuable discussions, to Leonhard Becker for excellent research assistance and to the Swiss Federal Statistical Office for providing the Census data. Thomas Liebig would also like to thank the German National Merit Foundation’s PhD scholarship programme for financial support. Abstract With the emerging international competition for highly-skilled migrants, the determinants of their choice of residential location are of increasing importance. Besides job opportunities and the subjective evaluation of a location, two other factors determine the expected net return from migration: taxes and network effects. Yet, empirical research on the effects of these two factors and their interaction on highly-skilled migration is lacking. For several reasons, Switzerland provides a particularly interesting country study. Tax rates are primarily determined at the local level in Switzerland and thus enough variation exists in order to analyse their influence on migration. Furthermore, in contrast to other European countries, Switzerland has pursued a fairly liberal immigration policy and maintains a unique permit system, which became increasingly skills-focused: more than 35 per cent of all persons with a university degree are immigrants.