UC Davis

Migration flows of individuals across borders can have large economic consequences both on receiving and sending regions. The Schengen area, where individuals are free to move between European countries, constitutes a unique lab for economists to study the determinants and the effects of unrestricted migration flows across borders. This dissertation focuses on Italy, an excellent setting to study these topics because of i) the availability of administrative data on international migration of Italian citizens, ii) a context of ''brain drain'', with large emigration rates of young college graduates towards other European countries since the 2000s, and iii) the introduction of tax schemes to attract back high-skilled expatriates.

The first chapter, co-authored with Massimo Anelli, Gaetano Basso and Giovanni Peri, and conditionally accepted for publication in the American Economic Journal: Applied Economics at the time of writing, investigates the effect of the recent surge in emigration from Italy on firm-creation and innovation on the areas-of-origin, and its implications for local labor demand. Entrepreneurship requires a high degree of creativity, initiative, risk-taking and adaptability, and research has shown that some of these traits also increase the propensity to migrate. Hence, locations experiencing large emigration rates may be at risk of losing their entrepreneurial capital, with negative consequences on firm-creation. Using a rich set of administrative data on emigration and firm-creation and employment at the local level, and leveraging an exogenous source of variation which combines past emigration networks across origin locations with pull factors from destination countries, we find that emigration had a detrimental effect on firm-creation, especially by young entrepreneurs and of start-ups with high-growth potential. We also document negative effects on local employment, wage bill and employment-to-population ratios, consistent with a reduction in local labor demand stemming from the loss of potential job-creators entrepreneurs.

Among the policy responses that countries have introduced to mitigate the effects of brain drain, one of the most widespread is a preferential tax scheme for high-skilled expatriates who return to their origin country. Are tax incentives an effective policy to attract back individuals who migrated abroad? While the public finance literature has found that top earners are highly responsive to fiscal incentives, it is unclear whether tax discounts attract young college graduates, who are often at the beginning of their careers and not necessarily high earners. In the second chapter, co-authored with Jacopo Bassetto, we tackle this question by studying the effects of the Italian 2010 tax scheme, which drastically lowered income tax rates for expatriates who move back to Italy, conditionally on holding a college degree and to be born after January 1, 1969. Exploiting these two eligibility requirements in a difference-in-differences strategy, we find that return migration of eligible individuals increased substantially after the introduction of the scheme relative to non-eligible groups, while being on similar trends before 2010. We then replicate the analysis using social security data from Germany -- the main destination country of Italian emigrants -- which allow us to study the return-migration response of different subgroups of Italian expatriates to the tax scheme. Specifically, we find a large migration response throughout the wage distribution, suggesting that tax-schemes-induced mobility is a broader phenomenon than the relocation of top earners and results in a substantial reallocation of human capital across sending and receiving regions.

Last, the third chapter asks whether tax incentives also influence migration decisions within a country. In a context of fiscal decentralization, local income and property tax differentials between locations imply that individuals' tax liability can vary substantially across jurisdictions. By exploiting a series of reforms in the 2000s that increased local tax differentials in Italy, the main finding is that internal migration -- as measured by transfers of residence for fiscal purposes -- is influenced by both income and property tax differentials, with important implications for local economies.