Tax Policy and the Migration of Skilled Canadians to the United States: Evidence from the 2016 Canadian Federal Tax Reform

Abstract

This paper examines the impact of Canada’s 2016 federal income tax reform—which raised the top marginal rate from 29% to 33% on income above $200,000 CAD—on the emigration of high-skilled Canadian workers to the United States. Using the Canadian Tax and Credit Simulator applied to Labour Force Survey data, I construct occupation-level measures of exposure to the reform based on the simulated change in post-tax income for top earners within highly educated occupations. Difference-in-differences and triple-difference event study specifications are estimated using American Community Survey data from 2010–2022, leveraging variation in tax exposure across occupation groups and comparing Canadian-born to OECD-born workers. The Canada-only estimates suggest that the stock of Canadian-born workers in the most tax-exposed occupations increased by approximately 17% relative to the least exposed occupations, with effects emerging two years after implementation and continuing through 2022. However, the triple-difference estimates, which account for common trends among OECD-born workers, are positive but small and statistically insignificant, indicating that the observed increase may reflect broader U.S. demand for high-skilled labor. The implied elasticity of migration with respect to the net-of-tax rate is 0.76, exceeding domestic estimates in prior work but slightly below foreign elasticities observed in European settings. These findings suggest that the migration response is economically modest and may fall below the precision of the estimates, consistent with the presence of cross-border frictions that limit mobility. Nonetheless, the concentration of these responses among top earners implies that relatively small outflows may still carry outsized economic consequences through their impact on innovation, investment, and employment.